And the shutdown that we have in second quarter of next year of 2024, will allow us to implement a large bundling of all of those changes, both in terms of suppliers, part design changes, component changes. I’ve talked about this a lot in the past, but massive consolidation of our ECU topology, massive simplification of our harness, simplification of our body structure, simplification of the HVAC system in the vehicle. So there’s big changes that are going to be coming as part of that shutdown. And we saw similar – it’s worth noting with the commercial vehicle, with the EDV, when we had the shutdown earlier this year, we had a 35% reduction in our material costs associated with the consolidated set of changes we made with that shutdown. So we’re expecting and anticipating a similar level of step change in our material costs following the shutdown.
And then lastly, which I spoke to a moment ago is growth in ASP. And that’s going to be both due to the layering in or the feathering in of new pricing, which again, we’ll just see quarter-over-quarter as more and more of our deliveries are associated with new pricing, meaning post-March 1, 2022, as we work through that. And then the other is the introduction of some of these new trim packages, Max Pack, is an example, we have some new trim configurations going to be coming out next year that will also help us grow ASP. So it’s a combination of ramp, material cost and ASP that give us a very high degree of confidence in our long-term gross margin for the business.
Mark Delaney: Yes. Thanks for that RJ. And my follow-up was on a related topic on margins. Last quarter, you spoke about your expectation for R1 to be contribution margin positive exiting this year. Is that still your expectation? Thank you.
Claire McDonough: Mark, we still expect R1 to be contribution margin positive exiting this year for newly priced units.
Operator: Thank you. Our next question comes from the line of Chris McNally with Evercore. Your line is now open.
Chris McNally: Thanks so much team. Sorry to follow on the same topic. But if we – I wanted to look at that sort of the shape of the gross profit progression as we think about next year. And so in just paraphrasing, could we think about this minus 30 – 2000 per vehicle, as sort of linearly getting better in Q4 and Q1? And then obviously, there’s a big step change. You talked about all of the massive improvements in the architecture of Q2. You have some re-ramp in Q3. So I don’t want to put – it’s going to be a more complex number. But coming out of Q3 into Q4, that’s where we should start to really see the gross profit ramp probably well through positive because then, obviously, you have targets in 2025 that include double-digit gross profit. Does that sound like a shape where you get a big change out of the Q2, Q3 into Q4 because that’s where a large amount of the architecture costs change out?
Claire McDonough: Yes. So Chris, as you think about the near-term cadence, one area I wanted to just call out is, as I mentioned in Rob’s question, EDV was a significant contributor to our Q3 margin improvement itself. And so as you look to Q4, given the seasonality of Amazon’s business, that will be a fraction of the volume that they took in Q3 of this year. And so you won’t see this linear path from Q3 to Q4 in terms of the gross profit losses per unit, they are just given some of the mix shift. As you look to Q1, you’ll see more similar types of dynamics, especially as you start to ramp up greater volumes of our Enduro Drive units, where you’re seeing some of the new technology introductions that we have in R1, you’ll see the benefits of Max Pack as well, throughout the course of Q4 and Q1, that are contributing to the cost down road map for R1.
And then as you mentioned, if you were to just look at the material cost trajectory, that’s where you’ll see the significant step change, really in the second half of 2024, as each of the new technologies that we’ll be introducing will start to go into production in the line as well. And so that’s going to be that step change in terms of gross margin improvement. However, that step change will be mitigated by some volume-related impacts given our production rates for Q2 and Q3. And so Q4 is where you’ll see more of the run rate potential coming out of the shutdown itself, and the full complement of material cost downs included within the vehicles themselves.
Chris McNally: Makes sense. I guess there’s a lot of moving parts. But basically, if we think about next year, there’s a Q1 clean quarter, and Q4, obviously, clean, again, there will be the EDV issues then. But basically, it all comes out of Q4. So okay, in terms of the shape, that all makes sense. One of the areas you’ve also been really improving upon has been on the OpEx side. And I’m just curious how do we think about if we run rate going into next year, when do we have to start to build in some OpEx for Georgia prework, some obviously can be capitalized. But do we have to start to build in an OpEx investment as I think about for 2024? Thank you.
Claire McDonough: As you think about the OpEx drivers, you’ll start to see Georgia pick up in 2024. But beyond that, you’ll also see more material investments as we approach the 2024 shutdown to introduce new technology. So as our team today is increasing the number of prototypes we’re building in advance of the shutdown and increasing the level of engineering, design and development work that we’re doing with our supply partners for those new technology introductions, you’re seeing a little bit of a tick up of R&D that you’ll see throughout the second half of this year and into the first half of next year itself. But in aggregate, we don’t expect a material increase. We’ll certainly see some continued increases across the board, but we’ll continue to maintain sort of the slight increased level that we’ve seen of late over the longer term.
Operator: Thank you. Our next question comes from the line of Emmanuel Rosner with Deutsche Bank. Your line is now open.
Emmanuel Rosner: Thank you very much. So it’s exciting to hear that you’ll be able to sell the commercial vehicles to other customers. I was wondering if you can try and help us with a directional sense of volume split between that and the Amazon one, and also timing. So after the re-rate next year, you’ll have, I think, 65,000 units of capacity for the commercial vehicles. How quickly or around what timeline do you think that you would be able to essentially fill that capacity between your current customers and any new one?
