Rivian Automotive Inc ($RIVN) Q1 2025 Earnings Call

Thanks, Derek. Hello, everyone, and thanks for joining us today. During our call, I will highlight key developments in the first quarter and provide an update on the progress we're making against our value drivers. First, I'm excited that Rivian delivered a second consecutive quarter of positive gross profit with a gross profit of $26 million. This reflects an outstanding effort from the team and a continued focus on cost and operational efficiency. We have now met the gross profit milestone with Volkswagen Group and expects to receive $1 billion in funding at the end of June, which Claire will provide more details on in her remarks. Customers continue to love our brand, our vehicles, and our products. In the first quarter of 2025, R1S remained the bestselling SUV with a starting price over $70,000 in California. And the R1S was the number one bestselling electric SUV in the United States with a starting price over $50,000. Part of what customers love about Rivian is the seamless integration of technology into the product experience and the enhancements that come with our over-the-air updates. One of our most critical technology focus areas which customers will start to see the output of is our Rivian autonomy platform. With the launch of our second generation platform, we entirely changed the perception stack and compute. Our R1 vehicles now have 55 megapixels of cameras and more than 200 TOPS of onboard inference. We designed this platform around an AI-centric approach where a vertically integrated technology hardware has enabled us to build a data flywheel for training our model with an end-to-end approach. With the scale of our second generation fleet growing, the strength of a robust sensor set feeding our data flywheel is enabling an important acceleration to our technology. The metaphorical plumbing for training our AI driving models is in place and the resulting benefits are just starting to be seen. We believe control of the data flywheel and associated autonomy platform will be important for autonomy development which we expect to have a greater impact on consumer purchasing decisions as we look towards the second half of this decade. We recently launched hands-free eyes-on driving for our second generation vehicles for highway driving and this is the very start of a steady stream of ongoing enhancements which we plan to make. We are focused on delivering turn-by-turn autonomy as quickly as possible while expanding from hands-free eyes-on to hands-free and eyes-off. We believe eyes-off functionality and autonomy in urban settings will enhance the overall product experience. Considering our broader AI work, including Rivian autonomy, there are several product and technology advancements which we've been working on but not yet shown or discussed. This fall, we plan to host an AI and autonomy day where we'll share more of our product and our technology roadmap. I'm really excited to reveal more of what we're doing here. As Rivian continues to innovate through AI, I'm also excited to announce Aidan Gomez is joining our board of directors. Aidan is the co-founder and CEO of Cohere and he brings extensive experience enterprise-wide across AI and is a terrific addition to our board. In parallel to technology development, Rivian is making significant progress in R2, including the start of our validation builds and the continued work on a 1.1 million square foot expansion to our Normal Illinois manufacturing facility. We also announced the construction of a 1.2 million square foot supplier park in Normal for which much of the building's construction is complete. This supplier park will help us further reduce costs for Normal production. Next year, we plan to start construction on our Georgia facility, which is planned to provide an additional 400,000 units of annual capacity for R2 and R3 once fully built out. Rivian's long-term investment in technologies such as autonomy, software, electrical hardware, and propulsion has provided substantial cost and performance advantages. For example, our development of the R1 zonal network architecture and associated software is the foundation of what's going into R2. With the expected scale of R2, our investments in this technology begin to build a structural cost advantage, which is a core element of delivering R2 at a price point expected to start at $45,000. Rivian's enterprise readiness for R2 stretches beyond just technology design and manufacturing for the product. It spans the entire organization as we scale our systems, processes, and infrastructure for rapid growth. I couldn't be more excited for R2's launch. Last week I was driving an R2 prototype and the vehicle is just incredible. Looking externally, the global trade regulation and policy environment is also top of mind. This is complex, multi-layered and rapidly evolving and impacts our global supply chains, trade and consumer sentiment. We have 100% US vehicle manufacturing and a majority of our bill of materials excluding cells are sourced from the US or USMCA qualified. However, we are not immune to the impacts of the global trade and economic situation which we expect to impact material cost, material availability, capital expenditures, and the demand backdrop. Importantly, as previously announced, the LG battery cells for R2 will initially be produced in Korea, but these cells are expected to be produced in Arizona starting by early 2027. With thousands of employees in the US and more than two million square feet of new construction underway at our Normal Illinois campus, Rivian shares the president's excitement in expanding domestic manufacturing capacity and continued US technology leadership. I can't wait for R2 and the long-term potential of our midsize platform which we will build in our Illinois facility and future Georgia facility. Lastly, thank you to our employees, customers, partners, suppliers, communities, and shareholders for their support. With that, I will pass the call over to Claire.

Yeah, thanks Dan for the question. Yeah, certainly we've been spending a lot of time looking at just the overall landscape around trade and certainly that has a big impact on battery tariffs. For us as you said through the end of 2025 we have inventory that provides us resilience to any increases in tariffs. As we look at 2026, very importantly with the launch of R2, the 4695 cell that we're using is initially sourced out of Korea but we've been for a while now working very closely with our partner on this which is LG to localize that into the United States and starting in 2027 those cells will be produced in Arizona. And so that's outstanding for us in terms of the long-term cost structure for R2. And then as it pertains to R1, both with the 2170 cells that we're using as well as the LFP cells, this is something where we're actively working to address some of the changes in trade. And we have the flexibility to be looking at alternatives and to be thinking around how do we evolve our cell sourcing strategy for R1 as we look at 2026 and beyond.

Yeah, thanks Adam. I appreciate the question. This is such an enormous focus area for us and as I said in opening remarks, I mean, we couldn't be more excited about this part of the business. It's an area we've spent a lot of time on. Getting the plumbing in place, meaning getting the right sensor set with our Gen 2 vehicles at launch, so dramatic improvement in sensors, a lot of onboard inference in terms of the compute level in the vehicle and then very importantly that feeding our data flywheel. And as we think about our performance and the need to grow our performance, the data flywheel is really important. It's not just how many vehicles are out there, but also the quality of the data coming off the vehicles. So the very high performance cameras that we have that have great low light performance, great bright light performance coupled with a multimodal approach to sensors where we have five radars including a front imaging radar in the vehicle allow us to make up for some of the fact that we have a smaller fleet. Of course the fleet's growing but make up for that with very high quality data and then as you alluded to that training that happens for the offline model, the large parameter model, that's happening through the data that's coming off these vehicles and so we've seen incredible performance with just that in place. We've just started to, you know, consumers are just starting to see some of the work that we're doing with the hands-free feature that we just launched but over the next year as both the fleet size grows, the data flywheel I talked about continues to ramp up further and further and then the efficacy of this really rich data set where we control the triggering events. So what data we take and then we control what goes up meaning we have every vehicle of course has LTE but a significant majority of our vehicles are also on Wi-Fi so we can very cost effectively move data from our car park into the cloud and then therefore use it to train our model. So we're quite bullish on this. I think this data infrastructure I just described is very unique because we don't have any third-party camera systems or platforms that are in the middle of that that either obfuscate or create abstractions of the data. We have raw data that goes up and allows us to really use that effectively for an end-to-end model with a pure AI-centric approach.

Thanks Mark. Yeah, there's a lot of uncertainty and I'd characterize it as there's a challenging backdrop from a consumer demand point of view. And what we're seeing is the interest in our flagship product R1 continues to be strong. The R1 is the bestselling premium electric truck or electric SUV across the whole United States over $70,000. And it's the bestselling premium SUV, electric or non-electric, in the state of California. And so in terms of how our products are performing relative to alternatives in the market, we're doing extremely well. The challenge is consumers are more price sensitive than they typically have been and are looking for lower priced alternatives and this is what makes us so excited about R2 and the R2 price point starting at $45,000. You know, if you look at even just in Q1, the average across both R1 and our commercial van, the average selling price was $85,000. So, and that's with the vans included. And so, we have a very high ASP, which is a great thing on our flagship product, but by virtue of that, the size of that market is just more limited. And I think in this environment with the level of uncertainty, it becomes even more constrained in this backdrop. But if we can have a fraction of the success we have with R1 in the much bigger market that R2 is operating in, we'll be very happy.

Thanks, Mark. We still expect to be roughly in and around the 300 million area for the year as a whole as we look at the broader outlook for regulatory credits.

Sure. The dynamics that we saw in the quarter was both a reduction in our raw materials by about $220 million and then we did have a significant increase of roughly $563 million in our finished goods inventory as a whole. And part of that was, and maybe I'll have Javier jump in as well, but we're very focused on driving towards more lean manufacturing principles from a logistics perspective. But Javier, if you want to comment on some of the initiatives at hand.

Thanks Philip. Yeah, our autonomy platform is entirely separate from our joint venture. The joint venture captures our operating system and software platforms across our zonal ECUs and then also includes the zonal ECUs themselves but doesn't include our in-house compute platform or compute stack or the perception stack that we've developed and of course not the foundation model and the work that's going into the software to drive our self-driving platform.

This is, as you've heard us say a few times here, this is just a dynamic situation. So I want to make sure we reflect that. But we're not planning changes in our $45,000 starting price. This is important for us and there's a number of variables that we are actively working on. Javier talked about it with regards to an incredible focus on our supply chain, our suppliers themselves, their production locations. We have the time to respond to the new policy framework that we're operating within. You know, it's very clear the president's intentions and we're very supportive of that in terms of driving more manufacturing to the United States. We're of course doing that already with our Normal plant and with the plant that we're also building in Georgia, but we're also driving that into our supply chain as heavily and aggressively as we can.

I think this is a part of a business that's going to evolve a lot over the next five years and the way we think about it is first and foremost increasingly customers are going to want to see higher levels of autonomy. You know I said this earlier in my opening statements just around the importance of going from a hands-on eyes-on approach to hands-off and then very soon hands-off eyes-off which is where you get your time back. You can use the time to be on your phone, reading a book, doing something else with a hands-off eyes-off and then ultimately having that work across any type of road. So urban, highway and so we see this as really critical from a customer experience point of view and the way these systems are developed now is so different than what the world looked like just a few years ago with transformer-based encoders and using an end-to-end training approach where we're building truly an AI-centric approach and think of it like a foundation model in the LLM world where there's a large parameter model that we understand how the vehicle operates within the physical world and a distilled version of that runs in-vehicle on our inference platform. And so we're very bullish on the technology. We think the changes that have happened in terms of use of transformers has completely shifted how we look at this just in the last couple years. It requires vertical control of the sensor set meaning it's impossible to design a system that has multiple third parties that are providing sensors or creating any layers of abstraction amongst those sensors. And so with all that said, we really believe this is going to be a key value driver for customers. Now the question is how does that value get harvested? So does it show up as an incremental paid feature? Does it show up in vehicle pricing? Does it show up in market share? I think it's yet to be seen. We certainly have lots of hypotheses internally, but ultimately it's going to show up as value to the business in some way. And it's interesting watching the difference in the ecosystem here in the West or in particular in the United States versus the ecosystem that exists in let's say China. And what we're increasingly see happen in China is that the self-driving features and capabilities are being used to drive market share. They're being used to drive sales. That is a path it could go, but it really depends on the competitive landscape. If there's only one or two brands or one or two companies that have this type of capability, we may see it show up more as a paid feature.

Yeah, thanks for the question, George. I love this question. I think it's an important one. I think there's a few big elements here and one could debate what's the most important or the biggest, but in our view there's in the United States in particular, there's a pretty extreme lack of great choices. And when I say an extreme lack of great choices, in particular, price points that start below $50,000. And in order for us to see large-scale adoption of electrification, we need to have enough selection in terms of brand, the design or the look of the vehicle, the form factor, the segment. And if you think about it in terms of consumers coming out of ICE vehicles and finding their way into EVs, there's hundreds of choices you have in the ICE world for products under $50,000. And there's a very very small number of compelling choices of EVs under $50,000. And there's an even smaller subset of different form factors. And so, as a result of that lack of choice, we've seen significant market share consolidation with Tesla and they've got great products with the Model 3, Model Y in that price category. But the market needs more choices. And this is why we're so excited about R2. We really believe this is something that will give consumers an alternative and a choice that's really interesting. It's going to help pull more people we believe out of internal combustion into electrification. You know, I spent a lot of time in the product. I was just in Arizona driving it. It is absolutely incredible. The dynamics, the function, of course for us knowing all the work that we put into optimizing the way it's manufactured from a cost structure point of view. You know, I just couldn't be more excited about what's coming with R2. But saying that, there's other elements here. And I think building out charging infrastructure is an important one. You know, for us, within Rivian is what we've done is we have a relationship with Tesla that allows our customers to use the Tesla network, but we're also building out our own network. In fact, we referenced it in our shareholder letter, but our network is, there's really only two networks that have the level of uptime that we have. Tesla's network, which is outstanding, and our network which is, we have over 700 chargers. The uptime is higher than 98%. And so Consumer Reports actually called out specifically our network as being incredibly performant and very easy to use which is great to see. So we're continuing to scale that network. It's an open network so it's also revenue generating which helps build the acceleration or the flywheel if you will of that network being expanded. And I think the last piece which actually ties to the question that came up before is not for technical reasons but in some ways by coincidence autonomy and electrification are often interlinked. And so I do think the growth of autonomous features and what we're going to see as we look out into 2027 and 2028 will help draw more customers into electric vehicles. Certainly, we feel that way about our own products and so we're quite bullish on what that will represent in terms of driving consumer behavior.

Yeah, we've, I mean Claire and I both referenced it. Our second consecutive quarter profitability with the $26 million of gross profit for Q1 does unlock an additional billion dollars in financing from Volkswagen Group. So that's outstanding. But the relationship there continues to progress really well. Our teams are working very closely together and even to the previous question, I think what has us so excited about this from a mission point of view is seeing our technology, our software stack, our zonal ECU architecture, seeing that deployed across a wide array of different vehicles and brands is ultimately going to give customers choice and is going to help drive more adoption of electric vehicles and the scale of it, with Volkswagen Group being the second largest vehicle manufacturer in the world is really enormous. And so, at this point, we're very focused on executing a lot of programs across the Volkswagen Group. We've talked about this before. Certainly, we're open to and plan to engage with other OEMs, but at this point, we don't have any additional guidance to say other than that we're focused on execution of all these exciting programs within Volkswagen Group.

Yeah, as we talk about consumer choice and Tesla's got an incredible set of products with the Model 3, Model Y, the vast majority of their volume is there and the price point's quite a bit different than our flagship product. So, our flagship product ASP is roughly double Tesla's Model 3, Model Y. And so, while you certainly do have some cross-shop, really R2 will be much more of a similar product in terms of pricing, very different in terms of execution. And again, jumping off the previous points I made around the need for product selection and diversity of choices, the Slate product is a very different consumer than a Rivian product. And we, you know, I'll always say this. I think it's really important that we have lots of choices. And those choices are not all on top of each other in terms of price positioning, customer demographic, vehicle form factors, vehicle positioning. So, I'm always pleased and encouraged to see new product concepts, new product ideas emerge. And this is one that's certainly not at all playing in the same spaces where Rivian operates today.

Yeah, we talked about just the level of uncertainty around how consumers are looking at the market and what that means for us in terms of overall demand backdrop and I mentioned that just the price sensitivity with our current product set on the consumer side being our flagship products with high ASPs. We do think R2 unlocks a huge amount of demand for us and will dramatically grow the amount of volume we're producing and because of that improve our fixed cost across all of our Normal facility. But as we then look at what does it mean for 2025, the guidance we provided reflects our adjusted view of how consumers are going to behave over the remainder of this year. It also reflects what we expect on the commercial side inclusive of our partnership with Amazon, a very close partner and we're working very much hand-in-hand to continue growing their fleet. As we look at this across our supply base, we're absolutely considering any impacts that the tariff environment will have on our suppliers from a cost point of view, but we're also looking at it from a supplier health point of view and making sure that we do all the work that we can to avoid any supply interruptions. And you know, these are, having lived through a number of these already, we're acutely aware of the challenges of being short one part. You know the vehicle has thousands of parts in it but you can't leave a couple of parts out and so our supply chain team has been forged through the supply chain crisis of 2022 and 2023 and has actually impressively jumped into action with what's happening from an overall trade point of view today and we feel a lot of that training that happened in 2022, 2023 is proving to be quite fruitful right now.

Yeah, I mean we are, I am starting to trickle out some content and if it's not obvious, we are so excited about it and my excitement sort of bleeds through into some of the pictures we're putting out there. But yeah, when we look at the R2 program, this is well underway. So, we're producing at pilot scale what we call validation builds today. And in fact, there's a picture of our validation, our pilot line in the shareholder letter. Those vehicles are critical for not just validating the vehicle itself from an engineering and design point of view, but also validating our suppliers and making sure that their processes are robust. And it's for me, it's really a meaningful step forward and it's hard to fully represent this in words, but just the difference of where the R2 program is today relative to its start of sales in the first half next year compared to where R1 was at the same point in its launch cadence. The level of robustness, the rigor that we have from a testing point of view, the rigor and robustness that we have in terms of supplier bring-up and plant bring-up is just incredible how much learning has been baked into this program. And a big part of that is of course the team that's grown and that's at all levels. That's our leadership team. That's the platform leadership team. And it's also sitting next to me. That's our COO Javier. And so I'd like to invite Javier just to talk a little about some of the work that we're doing in terms of your question on capital equipment and the build out of the R2 plant.

Yeah, we are, I referenced it a couple times, but we just put in place a hands-off eyes-on feature, meaning your eyes you still have to be looking at the road, but your hands can come off the wheel for highway application. That's going to broaden to more urban roads as well. But importantly, moving to hands-off, eyes-off. So what you might call a true level three is something we're very focused on and delivering that in specific environments starting with highways next year is really key for us. Now on the R2 side of things we do have a slightly enhanced perception stack that's going on R2 relative to R1. So it's 65 megapixels of cameras. So we've made further improvements in our camera set relative to R1. That's noteworthy because the R1 camera set today is the highest performing camera set that's on any vehicle sold in North America. Now, more megapixels than any other vehicle. And the dynamic range on those cameras is just incredible. When I say dynamic range, I mean the performance in very low light conditions or in very bright light conditions. And you know as I referenced this when I was responding to Adam's question earlier but that breadth of performance of the cameras and then feeding that entirely owned set of signals into our platform allows us to really accelerate the training with this really high quality data particularly when it's combined with the radar set that's on the vehicle. Yes, we have four corner radars that are traditional pretty straightforward radars, but the front center radar is an imaging radar. So, it gives us X, Y, and Z, and that provides a really nice additional modality for which we're training our system and we think about these end-to-end models being trained. The more robust the data set, the faster we see progress. And in fact, it's been helpful to see that same phenomena play out in the LLM space where the quality of data has become increasingly important. So how the data is selected, partitioned and fed into the model becomes really key. So with all that said, we don't envision having an R2 that doesn't have a very robust autonomy platform built into it because we think it's such a critical part of the customer experience. And as you know, as we see what's coming with the feature set, we don't envision our products not having that level of capability.

Thanks everyone for joining us today. This is a really exciting quarter for us being the second quarter positive gross margin and our highest gross margin to date with $26 million. We're excited to continue driving cost efficiency throughout the business and even more excited to see the effects that R2 will have on the business in terms of increased scale, sharing more of the fixed costs of our Normal facility and therefore driving even higher levels of gross margin profitability and ultimately profitability for us as a business. With that said, we're also incredibly focused on driving forward in terms of our autonomy platform. This is something that it took years of time to implement in our Gen 2 platform in terms of the hardware topology and we're now just at the beginnings of seeing this nonlinear growth rate in terms of capability and features and we'll continue to talk more about this. As I said earlier, we're going to be having an autonomy and AI day in the fall. And in that, we'll provide a lot more visibility and details into our technology stack, both the hardware side of things as well as the software, and provide demonstrations of what some of this roadmap looks like. And hopefully everyone can see why we're so excited about this internal effort. So with that, thanks again for the call and look forward to speaking with everybody next quarter.