WEBVTT - Rivian CEO RJ Scaringe Talks Expectations Amid Cost Cuts 0:00:00.080 --> 0:00:03.120 Now we are watching Rivian stock this morning. It is 0:00:03.240 --> 0:00:06.800 down pre market after the EV maker's second quarter revenue 0:00:06.800 --> 0:00:11.600 missed analysts estimates by just a tiny tiny hair. Cash 0:00:11.640 --> 0:00:14.160 burn for the quarter though also came in bigger than expected, 0:00:14.160 --> 0:00:17.919 and this is the worry. With Rivian joining us now 0:00:18.040 --> 0:00:20.759 is the founder and CEO r J. Scarringe, as well 0:00:20.800 --> 0:00:23.880 as Bloomberg Technology co host ed Ludlow, who covers the 0:00:23.920 --> 0:00:25.040 EV market so closely. 0:00:25.320 --> 0:00:25.479 R J. 0:00:25.560 --> 0:00:27.880 I want to ask you just quickly about the sales. 0:00:28.200 --> 0:00:32.120 This is no doubt a hot product. I mean, I 0:00:32.120 --> 0:00:34.760 have been fascinated by the car, I love the design, 0:00:35.040 --> 0:00:37.080 looking at it for years, and people wait in line 0:00:37.440 --> 0:00:40.519 to get them for a long time. Why are sales 0:00:40.640 --> 0:00:43.120 only growing three point three percent? 0:00:45.200 --> 0:00:47.200 Yeah, I mean it's great. As you said, it's great 0:00:47.200 --> 0:00:50.000 to see their action to the products, and we see 0:00:50.040 --> 0:00:53.800 that both through the excitement of our customers directly. But 0:00:53.880 --> 0:00:56.240 there's lots of ways to measure this, and we just 0:00:56.280 --> 0:00:59.560 had a Jdpower as an annual appeal study. We came 0:00:59.560 --> 0:01:02.000 out as an number one brand this year. We had 0:01:02.000 --> 0:01:04.880 a number one ranking owner JD Power City last year. 0:01:05.280 --> 0:01:07.280 So the reaction of the product has been great. We've 0:01:08.120 --> 0:01:11.319 in the second quarter, we went through a big refreshed 0:01:11.360 --> 0:01:13.200 to the product where we've now launched what we call 0:01:13.280 --> 0:01:16.520 generation two of that vehicle, of the R one tRNS, 0:01:17.000 --> 0:01:19.720 where we made significant improvements in the product, but also 0:01:19.800 --> 0:01:21.759 took a tremendous amount of cost out of the vehicle. 0:01:23.040 --> 0:01:26.120 Oh Jay, The kind of summary of the earnings print 0:01:26.240 --> 0:01:29.320 was that all of the guidance previously issued was reiterated, 0:01:29.560 --> 0:01:32.640 and there's a lot of positivity around that. Very simply. 0:01:33.120 --> 0:01:35.280 Loads of people asked me to ask you, can you 0:01:35.400 --> 0:01:40.959 define what modest gross profit means or what you're defining 0:01:41.000 --> 0:01:42.840 it by in order to achieve it? 0:01:44.000 --> 0:01:49.120 Yeah, I mean, ultimately, this has been the central focus 0:01:49.160 --> 0:01:51.880 for us as as a company as a business is 0:01:52.240 --> 0:01:55.880 driving cost efficiencies into everything that we do in Tarbilo materials, 0:01:55.880 --> 0:01:59.880 into how we operate and run our plant, and ultimately 0:02:00.040 --> 0:02:03.240 driving towards, you know, getting our production of our R 0:02:03.280 --> 0:02:04.760 one T and R O n s to to positive 0:02:04.760 --> 0:02:07.360 gross margin ultimately to have the business gets a positive 0:02:07.360 --> 0:02:12.520 for cash flow and profitability. So there's a whole series 0:02:12.560 --> 0:02:14.600 of steps we're making along the way in terms of 0:02:14.639 --> 0:02:17.679 improving costs, but the biggest singular step that we've made 0:02:18.400 --> 0:02:20.040 is what we did in the second quarter. We took 0:02:20.080 --> 0:02:22.679 the plant down for about a month or it, made 0:02:22.720 --> 0:02:27.600 meaningful changes to the operations and importantly changed a significant 0:02:27.919 --> 0:02:30.880 portion of our supply base out to new suppliers in 0:02:30.960 --> 0:02:34.799 conjunction with a number of design improvements, and all that 0:02:34.840 --> 0:02:37.760 comes together to take us to a place where, uh, 0:02:38.080 --> 0:02:40.359 you know, the incremental contribution to every vehicle we sell 0:02:40.480 --> 0:02:44.520 is positive. And that's you know, that's what we're driving towards. 0:02:44.520 --> 0:02:46.600 That's where we continue to guide towards for the fourth 0:02:46.680 --> 0:02:47.280 quarter of this year. 0:02:48.160 --> 0:02:50.000 In the first instance, Oh sorry, Matt, I was just 0:02:50.040 --> 0:02:51.680 going to hold our jay to account on that one 0:02:51.680 --> 0:02:54.360 and say, in the first instance, is it just like 0:02:54.919 --> 0:02:59.400 more than zero or single digits gross profit? Just I 0:02:59.400 --> 0:03:00.919 think that's the so that we're looking for. 0:03:02.160 --> 0:03:05.639 Yeah, we haven't provided a specific number, but certainly by 0:03:05.639 --> 0:03:09.040 saying it's positive gross margin, it's more than zero. You know, 0:03:09.040 --> 0:03:13.079 our objective, what we've guided to for a long time. 0:03:13.120 --> 0:03:15.679 We continue to maintain this guidance is the long term 0:03:15.960 --> 0:03:20.000 margin profile on our one should be around twenty five percent. 0:03:20.280 --> 0:03:22.720 And so that's what we you know, beyond just this 0:03:22.720 --> 0:03:26.680 this fourth quarter performance that we're tracking towards seeing how 0:03:26.720 --> 0:03:29.400 we continue to improve in twenty twenty five and beyond. 0:03:29.960 --> 0:03:33.600 We still maintain confidence in the twenty five percent gross margin. 0:03:33.840 --> 0:03:37.920 And the gross profit on vehicles has nothing to do 0:03:37.960 --> 0:03:40.560 with the credits. But with credits you can make a 0:03:40.560 --> 0:03:42.840 lot of money, as we've seen in the in the 0:03:42.880 --> 0:03:47.800 case of Tesla, you're making you know, double digit millions there. 0:03:47.960 --> 0:03:50.680 Do you expect that to grow considerably? Is it really 0:03:50.680 --> 0:03:52.000 part of your financial planning? 0:03:53.880 --> 0:03:57.120 And I think as we design the business and think 0:03:57.160 --> 0:04:01.360 about how we're operating a company, the credits environment is 0:04:01.360 --> 0:04:05.080 certainly something that's a helpful tailwind, but we don't design 0:04:05.120 --> 0:04:09.080 the company or the business or a strategy around it. 0:04:09.080 --> 0:04:11.440 It is worth noting, though, that we're seeing the credits 0:04:11.520 --> 0:04:14.840 environment really become a lot stronger as a number of 0:04:15.560 --> 0:04:19.680 existing or legacy manufacturers dial back or walk back from 0:04:19.680 --> 0:04:24.840 their electrication strategies. And we see that is further I mean, 0:04:24.880 --> 0:04:27.160 the most important point here is there further amplifies the 0:04:27.200 --> 0:04:30.880 need for more product in the marketplace. There's very very 0:04:30.880 --> 0:04:34.640 little choice in the sub fifty thousand dollars price range, 0:04:34.720 --> 0:04:37.840 and we see that, but just the dominant market share 0:04:37.839 --> 0:04:39.920 position that Tesla has with its Model three and its 0:04:39.920 --> 0:04:43.400 model y. Customers need choice, and so this is why 0:04:43.480 --> 0:04:47.040 we're so excited about the R two program, because we 0:04:47.080 --> 0:04:49.240 think there's a tremendous amount of late in demand that 0:04:49.760 --> 0:04:52.640 wants to buy a vehicle a lot like an R two, 0:04:53.240 --> 0:04:56.400 wants something that's less than fifty thousand dollars in that 0:04:56.400 --> 0:04:58.599 product when it comes to market, it hopefully answers ended. 0:05:00.240 --> 0:05:01.599 For most of the time that you and I have 0:05:01.640 --> 0:05:04.280 known each other and we've talked, Rivian has been in 0:05:04.360 --> 0:05:08.120 a position where it's been supply constrained. I wonder if 0:05:08.120 --> 0:05:11.640 that's still the case on the R one refresh. You know, 0:05:11.680 --> 0:05:14.200 you talked last night as a big factor towards growth 0:05:14.320 --> 0:05:18.440 profit being asp essentially that these higher performance spec are 0:05:18.560 --> 0:05:21.800 ones are going to put you in a wider range 0:05:21.800 --> 0:05:25.400 of price points, but that will be a contributing factor. 0:05:25.480 --> 0:05:28.000 Is there a backlog essentially for our one? Are you 0:05:28.080 --> 0:05:30.200 supply constrained in that sense? 0:05:32.000 --> 0:05:35.960 I mean, it's an important point. We've with a relaunch 0:05:36.000 --> 0:05:40.080 of what we call the Gentwo R one, it's not 0:05:40.200 --> 0:05:43.440 just cost out. We've also added some new packages. We 0:05:43.480 --> 0:05:46.160 have a tri motor, Our new next generation quad motor 0:05:46.200 --> 0:05:48.880 is extremely high performance. That's a lot of us to 0:05:48.920 --> 0:05:52.640 stretch the pricing band from our base you know, roughly 0:05:52.680 --> 0:05:55.040 seventy thousand our vehicle up to over one hundred thousand 0:05:55.560 --> 0:05:58.880 for our quad motor. And what that's really helpful in 0:05:59.000 --> 0:06:02.240 doing is helping to drive I have continual you know, 0:06:02.400 --> 0:06:05.839 sort of maintenance of that high average selling price. So 0:06:05.960 --> 0:06:09.520 this is something that we also continue to have confidence in. Uh, 0:06:09.839 --> 0:06:14.240 it does reflect as you pointed out, that there's there's 0:06:14.279 --> 0:06:17.600 a backlog of interest and excitement around the product. And 0:06:17.760 --> 0:06:20.039 today one of the things we're focused on is making 0:06:20.040 --> 0:06:22.920 sure that the tri motor and the quad motor ramp 0:06:23.880 --> 0:06:26.760 meets customer demand. It's those are the you know, higher 0:06:26.800 --> 0:06:29.320 price variants. They're great for driving ASP. They're also them, 0:06:29.800 --> 0:06:33.640 you know, the products that a lot of our early 0:06:33.680 --> 0:06:36.000 adopter customers really want to get. They want the best 0:06:36.080 --> 0:06:37.320 version of the vehicle that we make. 0:06:38.440 --> 0:06:41.320 I want a quad motor over a thousand horse power. 0:06:42.000 --> 0:06:45.360 With this vehicle, I think it starts at what around 0:06:45.360 --> 0:06:47.720 around one hundred grand. If I want the highest trim 0:06:47.839 --> 0:06:50.720 level RJ, I would have to borrow money to buy that. 0:06:51.640 --> 0:06:54.280 How important is it for you that the FED bring 0:06:54.400 --> 0:06:56.560 rates down into the into the next year. 0:06:59.360 --> 0:07:06.680 I mean Ultimately, we watched this extremely closely and just 0:07:06.720 --> 0:07:09.960 the overall macro environment that we're in, an interest free environment, 0:07:10.120 --> 0:07:12.640 it does have an impact on folks that are buying 0:07:12.680 --> 0:07:16.400 vehicles that are of this price point, you know, eighty 0:07:16.480 --> 0:07:19.920 ninety one hundred thousand our vehicles. You know, it's hard 0:07:19.920 --> 0:07:22.040 for us to predict exactly how that's going to play out. 0:07:22.120 --> 0:07:26.240 We much like in the credits environment, we work really 0:07:26.280 --> 0:07:28.800 hard to make sure our business is not dependent upon 0:07:29.080 --> 0:07:34.080 ultra low rates. But it certainly affects anybody who's selling 0:07:34.160 --> 0:07:37.600 or selling products that have financing associated with them. 0:07:38.160 --> 0:07:41.480 Oh, Jay, you gave really early heads up to investors 0:07:41.480 --> 0:07:43.400 that you're going to shut down Normal for about a 0:07:43.440 --> 0:07:48.320 month for splicing the plant right accommodate for R to install. 0:07:48.480 --> 0:07:50.920 That's a long period of time. Thinking back to April 0:07:50.960 --> 0:07:52.760 the three weeks, I know you're not going to tell 0:07:52.760 --> 0:07:55.960 me a number for production for twenty twenty five, but 0:07:56.040 --> 0:07:58.720 could you extrapolate out whether it's higher or lower than 0:07:58.760 --> 0:08:02.240 the base of fifty seven given that that four week 0:08:02.280 --> 0:08:03.280 period you outlined. 0:08:05.720 --> 0:08:10.560 Yeah, the decision to put R two in Normal was 0:08:10.600 --> 0:08:13.800 one that's going to ultimately provide us around two point 0:08:13.840 --> 0:08:18.280 twenty five billion dollars of capital savings in terms of 0:08:18.920 --> 0:08:21.080 reduce the amount of capital necessary to launch our two. 0:08:21.520 --> 0:08:23.040 So it was one of the big drivers. The other 0:08:23.200 --> 0:08:25.600 is it allows us to have really high fixed soss 0:08:25.600 --> 0:08:28.800 absorption between R two, R one and our commercial bands 0:08:28.800 --> 0:08:30.880 and a single plan. Now, of course, to do that, 0:08:30.920 --> 0:08:32.800 it does requires, as you've said, to shut down the 0:08:32.840 --> 0:08:35.760 plant for a period of time. What we've provided guidance 0:08:35.800 --> 0:08:37.480 on this is to say in the second half of 0:08:37.520 --> 0:08:39.240 twenty twenty five will be shutting down the plant for 0:08:39.280 --> 0:08:44.200 about a month, and that will impact production. We haven't 0:08:45.400 --> 0:08:48.960 we've been We've guided to say twenty twenty five will 0:08:48.960 --> 0:08:52.200 grow relative to twenty twenty four. We haven't been overly 0:08:52.280 --> 0:08:55.840 specific around these exact numbers of vehicles were produced, but 0:08:55.880 --> 0:08:57.840 it will be another year of growth for us. 0:08:58.120 --> 0:09:01.280 Are When I was a kid, some of the cooler 0:09:01.320 --> 0:09:04.280 guys had a Scout International truck in the high school 0:09:04.280 --> 0:09:06.360 parking lot. I always thought they looked so cool, and 0:09:06.720 --> 0:09:10.679 Folkswagen is reviving that brand. You're working closely with Folkswagen. 0:09:10.840 --> 0:09:13.560 My immediate thought when I saw that story was, Wow, 0:09:13.600 --> 0:09:16.640 they could just take a Rivian and rebody it as 0:09:16.720 --> 0:09:20.480 their new Scout. Is that anywhere near part of the 0:09:20.520 --> 0:09:23.880 plan or what kind of vehicles can you build together 0:09:23.960 --> 0:09:24.719 with VW. 0:09:25.960 --> 0:09:29.079 Yeah, the Volkswaging partnership is something we're really excited about. 0:09:29.120 --> 0:09:33.160 But the focus of this is around our leveraging our 0:09:33.200 --> 0:09:38.040 network architecture, our topology of computers, thepology of electronic controlling 0:09:38.160 --> 0:09:40.000 is the EC used in the vehicle, and then of 0:09:40.000 --> 0:09:43.440 course our software stack. It does open the door to 0:09:43.480 --> 0:09:46.480 other types of partnership and activities we could be doing 0:09:46.559 --> 0:09:50.680 with Folks Riding Group, but to date, the core focus, 0:09:50.760 --> 0:09:55.840 the singular focus is around our software and electronics technology. 0:09:55.920 --> 0:09:58.320 All right, Well, we look forward to any news that 0:09:58.360 --> 0:09:59.000 comes out on that. 0:09:59.120 --> 0:09:59.280 R J. 0:09:59.400 --> 0:10:01.720 Thanks so much for joining us. Really appreciate your time today. 0:10:01.800 --> 0:10:01.959 R J. 0:10:02.080 --> 0:10:05.840 Scaringe there of Rivian as well as Bloomberg Technologies anchor 0:10:06.040 --> 0:10:10.320 Ed Ludlow, who also is essentially the ed reporter for 0:10:10.440 --> 0:10:12.239 us here across all our platforms.