Yahoo Finance Rivian Automotive, Inc. (NASDAQ:RIVN) Q4 2023 Earnings Call Transcript
Rivian Automotive, Inc. (NASDAQ:RIVN) Q4 2023 Earnings Call Transcript February 21, 2024
Rivian Automotive, Inc. beats earnings expectations. Reported EPS is $-1.36, expectations were $-1.39. Rivian Automotive, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day, and thank you for standing by. Welcome to the Rivian Fourth Quarter and Full Year 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Tim Bei, Vice President of Investor Relations.
Tim Bei: Good afternoon, and thank you for joining us for Rivian's fourth quarter and full year 2023 earnings call. Before we begin, matters discussed on this call, including comments and responses to questions reflect management's views as of today. We will also be making statements related to our business operations and financial performance that may be considered forward-looking statements under federal securities laws. Such statements involve risks and uncertainties that could cause actual results to differ materially. These risks and uncertainties are described in our SEC filings and today's shareholder letter. During this call, we will discuss both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP financial measures is provided in our shareholder letter.
Just before the call, we published our shareholder letter, which includes an overview of our progress over the recent months. I encourage you to read it for additional details around some of the items we'll cover on today's call. With that, I'll turn the call over to RJ, who will begin with a few opening remarks.
RJ Scaringe: Thanks, Tim. Hello, everyone, and thanks for joining us today. During our call, I will highlight key developments during the fourth quarter, provide an update on the progress we're making against our value drivers, and discuss steps Rivian is taking to adapt to evolving market conditions in our industry. Before I dive in, as part of our ongoing focus on driving cost efficiency, we announced internally today the difficult decision to reduce the number of salaried employees by approximately 10%. These difficult decisions, among other initiatives, I plan to discuss, enable us to maximize the amount of impact we can have as a company. We hold a deep conviction that the entire automotive industry will electrify over the long term.
This means, as an industry, we're replacing roughly 1.5 billion internal combustion passenger cars across the planet over the next couple of decades. Rivian's mission is to accelerate this transition. Major goal with the launch of R1 was to build a brand that deeply resonates with customers. Beyond our active owner groups and the R1S being the top-selling EV in the US priced over $70,000, in owner satisfaction survey conducted by Consumer Reports, showed Rivian as the number one automotive brand with the highest likelihood for customers to purchase again. We intend to harness this brand strength as we launch R2, which we will be unveiling on March 7th. R2 represents the essence of our brand while targeting the significant mid-sized SUV segment, a massive market with limited compelling EV options beyond Tesla.
R2 has been developed with vertically-integrated propulsion platforms, electronics and software to create an incredible user experience. Our team is laser-focused on the factors within our control that will drive Rivian's long-term value. These include driving cost-efficiency, optimizing our production and deliveries, investing in differentiating technologies, enhancing the Rivian customer experience and maintaining a strong balance sheet. The progress we've made on ramping production and driving greater cost efficiency was significant in 2023. During the full year, we more than doubled production and deliveries and exceeded our initial production guidance by more than 7,000 vehicles. The team achieved this while also successfully managing the complex integration of new engineering design changes, including our in-house drive units for both the EDV and R1 platforms, LFP battery packs for EDV, and new vehicle variance, such as our Max Pack.
Ramping production and introducing new technologies across multiple vehicle platforms has presented challenges, but importantly, our team has gained significant learnings in a compressed timeframe. This experience will be foundational as we execute against our 2024 plan. We took significant steps towards driving greater efficiency in 2023. Gross profit per vehicle improved by approximately $81,000 when comparing the fourth quarter of 2023 to the fourth quarter of 2022. As we start 2024, I want to emphasize our team's continued sense of urgency and ownership mindset in driving further efficiencies throughout the organization. During our second quarter shutdown, we plan to incorporate additional material cost downs with the integration of new design engineering changes in the R1 platform, deliver further supplier cost reductions, capture the flow-through of commodity price improvements, and further optimize our manufacturing expenses.
We believe these steps position us to achieve modest gross profit in the fourth quarter of 2024. As we start 2024, I want to address the broader industry context, which I referred to during our third quarter call. Our business is not immune to existing economic and geopolitical uncertainties. Most notably, the impact of historically high interest rates, which has negatively impacted demand. In this fluid environment, we appreciate the expressed interest in demand visibility from the investment community. The conversion of orders to sales can be impacted by several factors, including delivery timing, location of order, monthly payments, and customer readiness. Our order bank has notably reduced overtime as deliveries have more than doubled in 2023 versus 2022 along with the impact of cancellations due to both the macroenvironment and the customer factors I just referenced.
For 2024, we expect our total deliveries to be derived from our existing backlog as well as new orders generated during the year. Our key focus is on increasing demand to achieve our 2024 delivery targets. Our go-to-market strategy is built on growing brand awareness, enabling our direct-to-consumer experience, and importantly, providing more opportunities for consumers to experience our award-winning R1T and R1S vehicles firsthand. We're scaling our Rivian Spaces program, which are equivalent of retail space -- retail locations, and today we have 11 sites open across North America, most of which have opened in the last six months. These sites have garnered over 130,000 visitors so far in 2024. Complementing our Spaces' footprint are more than 50 service centers serve as another location for current and potential customers to experience our vehicles.
We provided over 13,000 demo drives already in the first quarter and consider this to be one of our key demand building strategies. We've also expanded the lineup of our vehicles and recently introduced our Standard Range variant, which provides an accessible price point for more potential Rivian customers. We are encouraged by the early results. The steps we're taking in 2024 will be foundational in positioning Rivian as a leader in the transition to electrification. The opportunity ahead is significant. We're taking deliberate action to drive additional cost efficiency as we continue building our go-to-market capabilities and develop our R2 platform. I would like to thank all those who continue to support our vision, including employees, customers, partners, suppliers, communities, and shareholders.
With that, I'll pass the call to Claire.
Claire McDonough: Thanks, RJ. I'd like to reiterate our excitement for the long-term success of Rivian. Over the course of 2023, we made significant progress in all four key value drivers, driving greater cost-efficiency, continuing to optimize production and deliveries, investing in differentiated technologies, and continuing to enhance the Rivian customer experience. During the fourth quarter, we produced 17,541 vehicles and delivered 13,972 vehicles, which was the primary driver of the $1.3 billion of revenue we generated. Total revenue for the quarter included $39 million of proceeds from the sale of regulatory credits. We expect the sale of regulatory credits to increase over time but to vary quarter-to-quarter. For the full year 2023, we produced 57,232 vehicles, which was significantly above our initial guidance of 50,000 vehicles and more than double 2022 production.
Total gross profit for the quarter was negative $606 million. Gross profit per vehicle delivered was approximately negative $43,000. During the fourth quarter, cost of goods sold were negatively impacted by $70 million of cost primarily associated with our planned 2024 shutdown or approximately $5,000 per vehicle delivered. These costs include supplier-related expenses, accelerated depreciation and other expenses related to the new technology and cost-savings design changes going into the R1 platform. While we could incur additional costs associated with the planned shutdown in technology and design changes in the near term, we do not anticipate these costs to be part of our normal course of business in the longer term. During the fourth quarter, we also delivered a higher proportion of consumer vehicles due to Amazon's expected seasonality.
For context, the proportion of our total revenue attributed to Amazon was 8% in the fourth quarter of 2023 versus 30% in the third quarter of 2023. Given our commercial vans have lower material costs due to the technology changes made in 2023, the lower deliveries during the quarter negatively impacted our gross margin. In addition, due to this dynamic, the vast majority of the increase in finished goods inventory in the fourth quarter of 2023 was related to commercial vans. Changes in LCNRV and losses on firm purchase commitments benefited our fourth quarter results by $7 million as compared to $106 million in the third quarter of 2023, a difference of approximately $6,300 per delivered unit on a quarter sequential basis. Next, I want to help provide more clarity on how we bridge from our fourth quarter 2023 results to where we expect to reach modest gross profit in the fourth quarter of 2024.
The largest driver, which represents approximately 50% of the bridge, is our plan to reduce our variable cost per unit. The majority of this will be accomplished through material cost reductions, planned as part of our Q2 2024 shutdown. As a reminder, this is through engineering cost reductions, such as our ECU and wire harness simplification through our commercially negotiated cost downs and contribution from lower raw material costs. The second driver, representing approximately 35% of the bridge, is through our focus on driving greater efficiency through our production facility. As part of our planned shutdown, we are increasing the R1 line rate by approximately 30% to more efficiently produce vehicles. We also expect to see a benefit from declining LCNRV and firm purchase commitment balances in 2024.
The final piece of the bridge, which represents approximately 15%, is the scaling of our non-vehicle revenue with over 70,000 Rivians on the road, we have the opportunity for increased revenue areas such as regulatory credits, accessories, service, remarketing, and software-enabled services. These drivers are core to our long-term margin targets and we expect to continue to drive recurring revenues in these areas as the car park grows and we expand our offerings. Our adjusted operating expenses for the fourth quarter were $706 million. For the full year, our adjusted operating expenses of $2.7 billion represented 2.5% growth versus 2022, despite our production and delivery volumes more than doubling over the same period. As RJ mentioned earlier, we are in the process of optimizing our operating expense -- expenditures by reducing our salaried employees by approximately 10%, along with a limited number of non-manufacturing hourly employees.
Our adjusted EBITDA for the quarter was negative $1.1 billion. For the full year, our EBITDA was just under our guidance of negative $4 billion. Turning to our business outlook for 2024. We remain focused on driving greater cost efficiency across the company. We are guiding to 57,000 total vehicles produced for the year. Compared to 2023, we anticipate consumer and commercial vehicle deliveries to grow by low-single digits. As we discussed on last quarter's earnings call, we expect to shut down both the consumer and commercial lines in our [normal] (ph) plant for several weeks during the second quarter to introduce cost savings, in-vehicle technologies to the R1 platform. We believe these changes will meaningfully reduce our material costs and position Rivian to exit 2024 with a much improved margin profile.
While the direct downtime will be over a portion of Q2, we anticipate this to impact all four quarters of output, as we prepare the facility for the work and then individually ramp each vehicle variant, as well as our supply chain following the shutdown. As for the first quarter of 2024, due to managing changes in our supply chain associated with the introduction of new materials, we expect to factory gate approximately 13,500 units for the quarter. We expect that there will be a few thousand more vehicles, which are built but not factory gated as they wait an updated part we expect to receive in April. We anticipate the first quarter total deliveries to be approximately 10% to 15% below the fourth quarter of 2023 deliveries. While the incorporation of new design changes impacts near-term production, we are confident it better positions Rivian to be more profitable and competitive over the long term.
We expect 2024 EBITDA to be negative $2.7 billion as we focus on continuing our go-to-market infrastructure buildout and the development of R2, while also optimizing our cost, driven by the integration of key new engineering technology and design changes, negotiated supplier cost downs, and a more efficient operating expense structure. Recently, we have taken measures to rationalize our capital expenditures due to a greater focus on our core business. Capital expenditures in 2024 are expected to be $1.75 billion, driven by additional investments in our production facilities, next-generation technologies, and the continued buildout of our go-to-market operations. We remain confident that our cash, cash equivalents and short-term investments can fund our operations through 2025.
We aim to maintain a strong balance sheet position by continuing to drive cost efficiencies and improve our vehicle unit economics, while opportunistically evaluating a variety of capital markets available to Rivian ranging across the capital structure. Over the long-term, we continue to see a clear path to our approximately 25% gross margin target, high-teens adjusted EBITDA margin target, and approximately 10% free cash flow margin target. With that, let me turn the call back over to the operator to open the line for Q&A.
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