Dan Levy: Hi. Good evening. Thanks for taking the questions. I wanted to start with a question on COGS trajectory. And specifically, if you’re doing, if you’re planning on doing, call it, a mid $40,000 base price for R2. It means that to get any sort of a decent gross margin, you need to get probably COGS per unit in the high $30,000 range. You just did, call it like mid-120. So we’re talking about almost $100,000, a little less of improvement in COGS per unit. So maybe you can just help us conceptually or directionally understand how we bridge from COGS per unit today down to where you need to be on R2. I understand it’s partially discontenting, partially it’s smaller form factor, there’s scale, but maybe you could just walk through the pieces, how much is in your control? What’s easier? What’s a bit trickier? Any sort of a framework would be helpful. Thanks.
RJ Scaringe: Thanks, Dan. First, I just want to reiterate what Claire said before, which is on the R1 product, we are on a glide cycle to materially improve its cost of goods sold. And so we’re going to see that play out over the course of the year. The reason for the shutdown that we just went through was to implement not only changes in the plant to improve process flow and increase the production rate by 30%, but also to integrate a very large number of changes into the vehicle that are focused on costs. So those are new suppliers with updated part designs or designs that have been optimized around cost, areas of the vehicle we’ve actually consolidated parts or eliminated parts and without going through all the examples even on this changeover, there are areas of the body structure, for example, where the cost reduction was well in excess of 50% and that’s through part consolidation or part elimination or redesigning of parts using different materials or different processes.
So as we wind that forward into R2, R2 is a fundamentally different architecture. It’s built to a different set of requirements. R1 has a very extreme set of requirements in terms of on and off road capability, whereas the R2 product will still be very capable both on and off road, but not to the true extreme that the flagship product has. And every decision we take that every part, every system, every component, it goes through the lens of, is the part needed, can the part be consolidated? Can the function of that partner system be performed by another partner system? And it’s leading to a materially different vehicle architecture from a body structure point of view and vehicle integration point of view. But it’s also supplemented by a very different supplier relationship.
There are set of supplier relationships than what we had when we negotiated cost on R1 years ago. And so we remain very bullish on our ability to deliver on the R2 cost structure. It, of course, requires us to execute as we pull the full program together and complete the sourcing on the vehicle, but it is a significant set of improvements. And I called out a few of the examples, but just to reiterate those, part consolidation can come in many forms, use of high pressure die casting is one way to achieve it. Another is to have parts do more than one thing. So the use of the top of the battery pack is the floor of the vehicle. As an example, we have massively simplified closure systems in the doors for R2 versus R1. And then not often appreciated, but really significant is just the opportunity from an electrical point of view in the vehicle to minimize the number of ECUs and optimize the location of those ECUs as well as whatever they’re actuating or sensing to minimize the harness design.
And so across the board, holistically, we’re making all those types of changes, leveraging the learnings from R1T, R1S, the EDV and the most recent shutdown, which is leading to the significant cost reductions in R1, as we roll those into the R2 program to make sure we can achieve, as you said, aggressive but necessary COGS targets.
Dan Levy: Thank you. That’s helpful. Maybe just a follow-up on vertical integration. And so I understand that the move to put R2 into normal instead of Georgia was one of capital efficiency. But just amid this pivot in strategy, maybe you can give us a sense of if you’re thinking any differently about your level of vertical integration. I understand vertical integration is obviously still very key to the strategy, but are you thinking any differently about the level of vertical integration that you’re pursuing, maybe relying on partners a bit more versus what you maybe would have done in-house in the past? Thank you.
RJ Scaringe: Sure. I just referenced it a bit, Dan. But one of the really key areas for us is controlling the electrical architecture in the vehicle, the network architecture and then the associated software that’s running across all those platforms. And what that allow versus what the vast, vast majority of vehicle manufacturers pursue, essentially the exception of one other manufacturer, which is a Tier 1 heavy approach where Tier 1 suppliers to provide a variety of controllers that then control a function within the vehicle. By controlling all those computers, all those ECUs, it allows us to much more easily consolidate functions not by the domain, but rather across zones. So we can set-up a — what we call a zonal controller, that’s in an area of the vehicle that controls all functions across that area.
And the amount of savings that’s possible by doing this is not measured in hundreds of dollars, but measured in thousands of dollars. And the simplification of the vehicle harness that results from that is also quite significant. And that’s all Rivian facing advantages in terms of cost, simplification, simplifies the build process, but it also creates a lot of advantages for customers. We’ve already seen this from the launch of R1 where the control of those, all those platforms allow us to do deep over the air updates. When I say deep, I mean real over the updates. We’re not just changing a color on the screen, but rather introducing real features, changing the way the vehicle drives, improving the battery performance, improving thermal performance, things that are meaningful to the ownership experience of the vehicle.
And that we remain very convicted on. And in fact, the benefits of the heavy investment necessary to build-up all that capability will really be realized with R2, where R2 will leverage the network architecture, the ECU topology, of course, the software stack that’s been developed in R1. And the changes that we’ve just made as part of the cost down process with R1, that architecture will be going into R2. So we can look at this also as a de-risking of the launch of R2. And while I’ve talked about software and electronics, it’s important to note that this also extends to the way we’ve approached our high voltage systems. So our batteries, our battery packs, battery modules, our drive units, inverters. These are all areas that we’ve developed in-house technology around.
