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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Q&A Session

Operator: Thank you. [Operator Instructions] Our first question comes from John Murphy with Bank of America. You may proceed.

John Murphy: Good afternoon, guys. Just a question on the downtime, relative to the — on the R1 versus the launch of the R2. And RJ, just curious, is it maybe better to focus on pulling forward the launch of the R2 and committing capital both human and dollars to pulling that forward and getting that high-volume program up and running as opposed to tinkering with the line on the R1 and maybe circling back to that R1 line later? Is that possible or is there kind of constraints or I’m just kind of misguided and these things can both happen at the same time and you can’t pull the R2 forward at all?

RJ Scaringe: Yeah, thanks, John. We’re certainly working very hard to make sure we deliver R2 on time and to the extent possible, pull any time we can out of the program. I think what has us so excited about R2 is, if you look at the success of R1 in terms of how the markets responded to the brand and to the product, it’s the top-selling EV with a price point of over $70,000. And our hope, of course, is to translate the brand strength that we’ve demonstrated for Rivian with R1 into the R2 product and into a much lower-price segment which has a very large addressable market. I think the key thing though, coming back to your question on R1, is just recognizing how much of the content that’s going into the shutdown in Q2 actually translates to R2.

So, there’s a massive consolidation of our ECUs in the vehicles. That’s all the computers in the vehicle which we design and engineer in-house. We’ve consolidated them. We reduced the number of computers by about 65%. And that network architecture and associated ECU topology is very closely related to what’s in R2. And so, it not only de-risks R2, but it’s part of the development process and development sequence associated with the launch of that product. Along with that, these changes that we’re making to R1 with regards to just the overall changing out of hundreds of components and associated suppliers with those components also corresponds to a number of supplier engagements that we have that link to R2. And the volume that R2 brings allows us to be more aggressive in pricing with a number of the suppliers that are on the R1 program.

So, the two are very much interlinked. With that said, as we think about our focus as a business, the shutdown and the updates associated with it in our bill of materials and along with the line, really is sort of part one to the major focus for us as a business, which is the successful launch and rapid ramp-up of the R2 production.

John Murphy: That’s very helpful. One follow-up. If you think about product cadence in spacing of product, do you feel like the tack that the Tesla is taking of a product launch that’s relatively sparse but constant improvement is more appropriate in the direction you’re heading, or do you think something closer to sort of a typical sort of four to five-year product lifecycle with many products interspersed is the way you’re ultimately going to land as we kind of look five to 10 years in the future?

RJ Scaringe: Yeah. When we think about it from a customer point of view, one of the things we see is most valued is making sure that the platform — the vehicle platform and architecture allows for a continuous stream of updates. And so, in the R1 product, customer satisfaction is extremely high. The brand strength is high. Consumer Reports rates us as having the highest level of brand equity, if you will, where the likelihood to repurchase is the highest for our brand. And a lot of that’s borne out of the continued updates we’re making through over the year software improvements. And so, we think that’s a really dramatic shift in just how we think about products and sort of overall vehicle lifecycle. That will translate, of course, into R2.

And as we look at the launch of R2, learning from what we went through and launching R1 with R1T, R1S, and also the commercial vans, all in parallel, we’ve really simplified the product portfolio cadence with R2, where there’s a single vehicle that we’re launching. The number of build combinations and trim combinations is very limited, with an emphasis on managing rapid ramp-up of the supply chain and driving operational efficiency into the R2 plan.

John Murphy: Okay. Thank you very much.

Operator: Thank you. One moment for questions. Our next question comes from Adam Jonas with Morgan Stanley. You may proceed.

Adam Jonas: My first question is, how much of the volume that you forecast for this year is pre-order versus what you would expect to be sold out of inventory? And I have a follow-up.

RJ Scaringe: Thanks, Adam. Our backlog is something that we know there’s been questions around just what does that look like? What’s the topology of it? One of the things we need to recognize is a lot of the customers that are in our backlog have been there for a number of years. And as a result, it’s not as if the moment someone gets to the front of the line, so to speak, and they’re — we’re ready to make a delivery to them that they can take delivery at that moment. Life situation in terms of when they’re ready to take on a new vehicle, the coordination of that around what their financing expectations are, all of those factors play in. And so, the way to think about our backlog is to recognize that this will be — this will continue to exist through the remainder of this year.

But in parallel to delivering vehicles from our backlog will also be delivering vehicles from newer orders, orders that are happening over the course of this year. And so that, for us, is a transition as a business where we go from purely delivering from backlog to having folks that are coming in new demand and having those deliveries happen much quicker. And to help facilitate that transition, we’ve created a few customer-facing structures that make that easier. We’ve created something we call the R1 Shop, which allows some of the more common build combinations to be put in there to allow customers to get access those vehicles more quickly. And still, to this day, one of the most common questions we get from customers is, “How quickly can I get my vehicle?” And so, managing that dynamic of customers wanting to have the immediate gratification of they buy a vehicle, they get it within a week or two, along with customers that have been waiting for, in some cases, two or three years, that balance has been something we’re learning to navigate, and we do expect to continue to have to manage that balance over the course of the year.

Adam Jonas: Okay. And just as a follow-up, the EV world has changed, much RJ, since the 2021 IPO in a lot of ways, in a more moderated demand and competitiveness and pretty uncertain economic environment to boot. So, I’m just wondering has the Board and the management team, are you still fully committed to that vertical integrated, go to Georgia, 400,000 units, $5 billion on your own strategy, or has the Board considered any alternative to the greenfield option in Georgia or at least some adjustments in terms of the size or whether you go in with a partner, or is it pretty much the strategy from 2021 that you’re kind of going ahead with right now into ’24? Thanks.

RJ Scaringe: Thanks, Adam. The way we’ve approached our Georgia facility is to build out the plant across two phases. So, it’s not a single 400,000 unit block, but rather two 200,000 unit blocks. I think the broader point that you raised just around overall demand for electric vehicles, how fast the market transitions to electric vehicles. We do think we’re in a very interesting moment in time where there is a lack of choice of highly compelling EV products in that $45,000 to $55,000 price range, recognizing the average price of a new vehicle transaction in the United States last year was around $48,000. And so, when we look at the competition that exists we often get immediately drawn into competing what’s the competition look like directly with Tesla.

But we need to recognize only 7% of the market has electrified, meaning, really, we’re talking about how do we get the 93% of the market that’s not buying an EV to get excited about the product. And R2 — the layout of the vehicle, the package, the configuration, the technology content, we think creates a really interesting and very unique configuration that we’re very bullish in the demand for that product. And of course, recognizing what we’ve seen in R1 and how strong Rivian has resonated with consumers there, we remain very bullish on the R2 segment and the R2 product itself. And so, the way that we’ve engaged with our suppliers to ensure that we can ramp effectively as well as laying out the production roadmap, albeit measured, as I described across two phases has been very much thoughtful of the scale of the opportunity and the scale of this transition that we see happening over the course of this decade.

Adam Jonas: Okay. Thanks, RJ.

Operator: Thank you. One moment for questions. Our next question comes from Joseph Spak with UBS. You may proceed.

Joseph Spak: Thanks. Good afternoon. Just on the workforce reduction, sort of, obviously, some tough decisions. And I know Claire and RJ sort of been really focused on the gross profitability. But maybe if we could just sort of focus a little bit on OpEx, because — and I understand you’re cutting the workforce by 10% here, but how do you get comfortable that your — that even that is sort of the right level? Because ex stock comp in ’23, it’s just under $3 billion. If — I know it’s a different world, but if I look at like where Tesla was at a sort of similar level of sales back in 2015, you’re still like 80% above that. So, maybe you could just give us a little bit more color on sort of OpEx and the plans there going forward?

RJ Scaringe: Yeah. Thanks, Joe. Yeah. When we think about OpEx, there’s a number of components here. So, just to break apart the big category of it all. If we look first at R&D — if we look at it between R&D and SG&A, on the R&D side, we have to recognize, comparing to Tesla in 2015, while useful, and certainly we look at these types of metrics internally as well, we’re not competing against Tesla in 2015, we’re competing against Tesla and others in 2024. And so, we’re driving incredible focus on efficiency and how we develop our products. We talk internally about being the most efficient at turning capital into amazing products, but it does also require us to be spending appropriately in the core areas. And for us, there’s a few areas that we’ve made the decision to develop vertically in-house to create what we believe to be significant structural long-term advantages.

And that’s really around the electronic stack in the vehicle, so the ECU and computer topology throughout the vehicle, the software, of course, that’s running on those computers across the vehicle, and then, our high-voltage architecture, so that’s our high-voltage battery system all the way through the rest of the drive line, so through the drive unit out to the wheels. And it’s in those areas that we see both technical differentiation that creates really a consumer experience that’s markedly different and better than what we believe a source third-party strategy would deliver, but it also provides meaningful cost advantages. And in the compute stack and ECU topology front, the biggest opportunity here is ECU consolidation and the ability to have a much smaller number of computers that run the vehicle.

And of course, because we control and design those computers, it allows us much more seamlessly to do that. So that’s — first on the R&D front, a big focus, as I said, has been on driving efficiency into that. Now, we think of R&D as entirely spending within our employee base, but a big portion of this is also with suppliers. And it has to do with the supplier development costs associated with, let’s say, a seat program for the R2 or headlights for the R2. And so, a lot of the negotiations that are being driven, I referenced this earlier, around R1 supply also linked to much more strategic long-term relationships with our suppliers that will feed into R2, where we’re asking those suppliers to treat us much more like partners, where instead of having to pay the suppliers so much up front, which is a lot of what we’ve dealt with historically, to those suppliers, recognizing and clearly seeing the market strength that we have.

I mean, these suppliers are providing all of our competitors and they see our volumes relative to our competitors, especially with R1 seeing its really dominant position from a market share point of view, that’s helped a lot in completely changing the nature of those discussions with suppliers, which of course, we think about it, we talk about a lot in the context of COGS, but it really does impact us on the OpEx side through the pre-launch development costs. Now with that said, I do want to just spend a moment here on SG&A, because it’s the other big driver of our OpEx, of course. And on this front, we’re at a point where we’re building out service network, we’re building out sales and distribution network, and a number of these areas today are recognized as OpEx. In particular, on the service side, almost all of this is OpEx. But over time, of course, our service costs become part of our COGS structure.

And in fact, service will ultimately be a profitable part of the business. And so, Claire referenced this and we can certainly speak to it more here, we’re very focused on not minimizing the growth of our SG&A spend as we continue to scale the business. So, while the business is scaling and the number of vehicles we’re supporting in the field grows dramatically over the next couple of years, we’re working very hard to really maintain a lean SG&A side of the organization. And that has the tailwind of a lot of those costs that are embedded in SG&A today, as I said, becoming COGS and actually becoming profitable.

Joseph Spak: Okay. Thanks for that. And then maybe just on CapEx, I think last quarter, you sort of talked about a ’23, ’24 average below $2 billion. And I guess that’s technically true, but it’s pretty significantly below $2 billion now with $1.75 billion guidance. So, was there — is there sort of a further shift in capital spending? And if so, what does that relate to?

Claire McDonough: Of course. As we think about the broader context, first and foremost, as you heard RJ talk about we’re focused on driving efficiency across the entire company as a whole. And so, as we look at what we’ve been able to achieve given these efforts across the company, it’s allowed us or enabled us to not just shift out CapEx, but dramatically reduce the required CapEx within the business as a whole. And so that’s by pressurizing the areas of investment, whether it’s how efficient we’re able to invest in some of the re-rate activities in normal and taking CapEx out there, whether it’s, as RJ mentioned, engaging with suppliers around product tooling investments, whether it’s continuing to tweak around the efficiency of all of our go-to-market operations investments between sales and service locations, as well as all of our enterprise tech and logistics infrastructure as well.

And so, I think what you’re seeing from us is it’s really just continuing to drive that mentality of efficiency and culture of efficiency across not just CapEx, but really our operating expenses, how we’re managing our cost of goods sold, and equally as we’re thinking through the way in which we’ll manage our inventory balances as well, which are our four key focuses across the business.

Joseph Spak: Thank you.

Operator: Thank you. One moment for questions. Our next question comes from Rod Lache with Wolfe Research. You may proceed.

Rod Lache: Hi, everybody. There’s a comment in your release about the 2024 forecast requiring an improvement in the order rate, and you said it’s going to be driven by planned go-to-market strategies. I wanted to ask about that. Is it reasonable to assume that the Q1 deliveries that you’re projecting here is kind of reflective of the current order run rates, around 12,000 or 135 a day? What is the impact that you’re seeing from some of the strategies you’ve unveiled, like the standard variance and leasing? And can you talk a little bit about how you’re going to get the word out or advertise what you’re offering?

RJ Scaringe: Sure. Well, thanks, Rod. Yeah, you referenced it, but it’s important to note here we’ve just recently launched our Standard pack variant, which we’ve long talked about, but ultimately it’s now available to customers. And we’re really encouraged by the reaction to that and some of the early read-through on just what that does in terms of demand generation. It’s also worth noting, and implicit in your question is a key element here, which is the Standard pack has not only driven demand for our more price-sensitive customers, but it’s actually increased. We’ve seen an increase in demand for our Quad Large pack as well. And that really links to the continued growth and awareness for what we’re building. And when we think about how strong our customers like the product and how the brand excitement for customers has been so high, with the likelihood of repurchase being by a significant degree the highest across the entire auto industry, it’s really a key element for us in terms of driving knowledge of the brand, knowledge of the products, and driving awareness up.

And so with that said, a lot of the investment that I was referring to in the letter and in my opening comments has to do with building out more of our go-to-market infrastructure. Today, we have 11 Spaces. We have just over 50 service locations. We’re now offering test drives through our service locations along with some of those Spaces. But getting customers in our vehicles is by far and away the most effective way to not only drive brand awareness but to convert that brand — that experience into actual vehicle orders and vehicle sales. And so, a lot of activity is going to be playing out over the course of the next few months to continue building up those functional capabilities within the business and also the infrastructure associated with supporting physical interaction with the products.

Rod Lache: Right. Just given what you’re seeing right now, can you discuss the rationale behind expanding the capacity by 30% and — at the end of this year? And any update on EDV demand outside of Amazon?

RJ Scaringe: Yeah. Within the plant, the shutdown we have coming in second quarter, next quarter, I think a lot of the thinking around that tends to drive towards what’s happening in the plant. And I said it before, but just to repeat here for clarity, one of the most important parts of the shutdown is actually what’s happening within our supply chain. So, we’re making a number of supplier changes, a number of component changes, along with supplier changes that lead to significant reductions in our material cost. And the scale and amount of change in our supply chain and through our bill of materials means that the coordination of the restart of the plant and winding down of the existing inventory, bringing up of new inventory, requires that multi-week shutdown.

And with that multi-week shutdown, we are making improvements to line as well. I do want to make that very clear. And the improvements are really focused on line rate and the ability to run the line at a higher speed and therefore in a more efficient manner. And that increased line rate will ultimately translate to lower conversion costs, reduced hours per unit within the plant as we look at operating post-shutdown through the rest of this year.

Rod Lache: Okay. And the EDV demand?

RJ Scaringe: Yeah, this is something we’ve talked about in the past. We’re really excited to have new customers running pilot programs. We have more of these pilot programs coming online. There’s more and more images of our commercial vans being spotted with different logos on the side. But as we’ve said in the past, for these large fleets and the complexities associated with transitioning to an electric vehicle fleet, we expect these to start as pilots and then over the course of this year transition into larger scale orders. And we don’t anticipate and we’ve been careful to guide to say that really the significant step up in demand associated with non-Amazon customers, we’ll see that next year in the 2025 timeframe.