Rivian at Wolfe Research: Strategic Shifts in EV Market

On Tuesday, 18 March 2025, Rivian Automotive (NASDAQ: RIVN) presented its strategic outlook at the Wolfe Research Virtual Autos Summit. The company highlighted both opportunities and challenges in the evolving electric vehicle (EV) landscape. CEO RJ Scaringe discussed Rivian’s focus on cost reduction, inventory management, and its ambitious plans for the R2 platform, while acknowledging hurdles like tariffs and slower commercial vehicle growth.

Key Takeaways

• Rivian aims to achieve positive EBITDA by the end of 2027 through cost management and vertical integration.
• The launch of the R2 platform is prioritized, with a focus on reducing material costs by 45% compared to the R1.
• Rivian is addressing slower growth in the commercial vehicle space by shifting focus to R2 production.
• The company plans to generate $1 billion in revenue from software and services this year.
• Rivian is preparing for the potential impacts of tariffs and policy changes on its operations.

Financial Results

• Q1 deliveries are projected at 8,000 units, with production planned at 14,000 units to build inventory.
• 2025 delivery guidance ranges from 46,000 to 51,000 units, reflecting a 1-10% decrease year-over-year.
• Rivian achieved a $30,000 reduction in COGS per vehicle in Q4 2024 compared to Q4 2023.
• The company anticipates significant revenue from software and services, with half coming from its own fleet.

Operational Updates

• Rivian is transitioning to an inventory-based sales model to ensure faster delivery times.
• The R1S leads the premium electric SUV segment, while R2 aims to capture the sub-$50,000 market.
• The Normal plant’s capacity exceeds 200,000 units annually, with 155,000 allocated to R2.
• Rivian delivered 20,000 EDVs to Amazon, with plans to adjust output to focus on R2.

Future Outlook

• The R2 is set to launch in the first half of 2026, alongside the construction of a new plant in Georgia.
• Rivian plans to offer advanced driver-assistance systems (ADAS) with hands-free capabilities by 2026.
• The company sees rapid growth in the EV market, emphasizing the need for diverse product offerings.

Q&A Highlights

• Discussions focused on the impact of tariffs and the IRA on Rivian’s cost structure.
• Rivian’s partnership with Volkswagen is expected to provide capital and enhance supply chain efficiencies.
• The potential for ADAS features to drive additional software and subscription revenue was explored.

Readers are encouraged to refer to the full transcript for a detailed account of the conference call.

Full transcript - Wolfe Research Virtual Autos Summit:

Unidentified speaker: And we’re very excited to kick off this next discussion with Rivian and with RJ. Rivian is an organization that has achieved something that very few have been able to do in the recent history of the auto industry, which is to start a car company from scratch and build a brand that resonates emotionally with consumers. And in that process, the company has really chartered its own course, vertically integrating in key areas, including software, electronic architecture, distribution, and EV charging. In doing so, Rivian has demonstrated clear competitive advantages, especially in software and architecture. It has also clearly demonstrated, been demonstrated again with the recent JV with Volkswagen, where the two companies will co develop a next generation platform leveraging much of the work Rivian has already done, including on the recently redesigned R1.

So now looking ahead, execution over the next few years is going to be very important. Rivian’s mass market mid sized SUV called the R2 is launching in the first half of twenty twenty six. Construction on your second plant in Georgia is also set to begin in 2026, and management expects to reach positive EBITDA by the end of twenty twenty seven. So very much a lot on your plate. Here to discuss these targets and the evolving EV landscape is RJ Skarinje, Founder and CEO of Rivian.

RJ, thanks so much for being with us.

RJ Skarinje, Founder and CEO, Rivian: Yeah. Thanks for having me. We’re excited to be here. And as you said, there’s a lot of things happening within the business, so I’m looking forward to discussing that with you.

Unidentified speaker: Yes. I’m here. So maybe just to kick things off on some of the shorter term dynamics and demand trends in particular. Nearer term, you talked about Q1 deliveries of just 8,000 units as the quarter was being impacted by seasonality and unique demand challenges including the LA following the fires. At the same time, you’re planning to produce 14,000 units, so it implies a pretty sizable inventory build.

And then you’re expecting 25 twenty twenty five deliveries of 46,000 to 51,000, which is down one to 10% year over year and partially impacted by planned downtime. So what in your view is the true underlying demand this year, And what tools are you using to keep it healthy?

RJ Skarinje, Founder and CEO, Rivian: Yes. I mean, we’re as you said in your opening remarks, we’re really pleased with the strength of the brand that we built and the excitement that we have for the products and not just R1, but also what’s coming with R2. And so as we look at the remainder of this year, we intend to continue building on that brand strength. And what we’ve guided to reflects sort of the view that with R1 given its high average selling price, the call it 46,000 to 51,000 guide represents what we think is appropriate for demand this year and very realistic and of course achievable this year. In terms of Q1, the level of production being higher than what we’re selling in this quarter is really us anticipating the shutdown that’s coming in the second half of this year and wanting to build a healthy inventory level.

The other thing that’s happening is we’re seeing a pretty profound shift from how we sell vehicles, going from a world in which our vehicles are produced, they’re linked to a customer at the plant and then the vehicles are then sent to where the customer is to a model that’s much more inventory based and needing to have inventory close to where customers are. And as we think about customers coming in to buy a vehicle, they want to make the decision to buy the vehicle and then have the vehicle within twenty four to forty hours. And so, we’re also building out inventory within our distribution network to support growing sales. We’ve seen demonstrations of just how effective that is in Q4, and we’re seeing that again as we speak now.

Unidentified speaker: Now there’s been a lot of discussion around the Tesla brand recently and certainly some indications that maybe it is struggling a little bit. That could presumably create an opening for Rivian. So I’m curious, have you seen any signs recently of either an uptick in orders or even indication of interest from current or prior Tesla owners in the last three to six months?

RJ Skarinje, Founder and CEO, Rivian: Yes. I mean, when we look at the overall landscape for what customers have in front of them for choices, particularly when you look at price points under $50,000 there’s very few highly compelling choices. And I’ve said this a lot in the past, but if you’re buying an electric vehicle and let’s say you want to spend $40,000 to $50,000 there’s really maybe one or two highly compelling choices. One of those, of course, being Tesla with the Model three and the Model Y. But the lack of choice is a real essentially, it creates a real glass ceiling on how much EV penetration we’re going to see.

And so notwithstanding your question and just some of the sentiment that we’re seeing emerge around Tesla, there’s a massive amount of untapped demand that exists under $50,000 And when I look at R1, R1, the R1S is the it’s the market share leading electric actually in the premium segment. So vehicles priced over $70,000 And of course, our ASP is quite a bit higher than $70,000 It’s you can back it out from our numbers, but it’s on the order of $90,000 And that’s a significant that’s a significant amount of money. And there’s just the size of that market is relatively limited. And even if we’re number one in terms of market share and we’ve got incredible brand appeal, Consumer Reports has an annual brand survey. We’ve come out for the last two years as the number one ranked brand and the number one rate of repurchase.

But there’s just not a product for where most customers are, which is under $50,000 So, we are I couldn’t be more excited about what’s to come with R2 and the benefits that R2 brings to the whole business in terms of increased scale. That drives cost down not just for R2, but it also helps the cost structure in R1. So we’re ecstatic about what’s to come with R2.

Shreyas: Maybe we can just touch on sort of the topic du jour, which I guess is tariffs. And maybe even we can expand it a little more and think about IRA and emission regulations. There’s a lot of moving pieces and, you know, we’d love to get your take on a few of those, but just big picture, how are you and the team navigating through this environment where it seems like policy decisions are changing quite rapidly and each of which could have a pretty meaningful impact on the organization?

RJ Skarinje, Founder and CEO, Rivian: I mean, there’s a few categories to consider here. So there’s in terms of policy. There’s, of course, what we’re seeing happen with the IRA and our view is we are going to see that diminish over time. We can debate when and how and to what degree, but I think it’s a fair assumption to say that that’s going to reduce over time. And that’s been built into our plans for a while.

And we’ve recognized that even in the guidance we just talked about in terms of 2020, in terms of 2025 numbers. But the more challenging long term shift macro shift that we’re navigating now is the potential of increased costs for parts coming parts and systems coming out from outside The United States. And very long time trade partners between Mexico and Canada have had billions and billions of dollars of investment in production capacity in those countries. And so this isn’t unique to Rivian. This is across every manufacturer in The United States.

If you’re building cars in The U. S, you’re leveraging to some degree and generally a pretty significant degree, a supply base that’s built across NAFTA. So with that said, we’re, of course, responding to it. It’s very dynamic. We’re a number of different contingency plans that allow us to adjust.

And given that most of R2 has been sourced while these were discussion areas, a lot of our sourcing contracts, so the vast majority of R2 has been sourced, it’s close to 100% of the vehicle sourced now, but that was done over the last roughly half year. And so that in that timeframe, we built contracts that had some protections for us in the event of tariffs going up. And we’re of course now utilizing some of those protections. But I do think if tariffs for outside goods outside The United States are going to go up, we’re going to see price of vehicles either go up or certain manufacturers more so than Rivian have hit on their margin structure.

Shreyas: And then maybe, so then just thinking about the longer term implications, tariffs to some extent, we can, I think you kind of alluded to that? But if we see the IRA get repealed, if regulatory standards for emissions are rolled back, Can Rivian still get to the long term targets like positive EBITDA by year end in your view?

RJ Skarinje, Founder and CEO, Rivian: Well, first, we should separate immediate medium and long term. So in the medium term, if a 20% tariff goes in overnight, there’s nothing we can do the next day to shift our supply chain. We may have contractual protections that reduce some of that cost to us, but there’s there’s not a lot you can do. In the medium term, we can work with our suppliers to find production locations that are more advantaged from a tariff point of view. And in the long term, this will all settle out.

We’ll optimize our supply chain around the tariff structure. The big challenge we have today is just so many unknowns and it’s changing so dynamically and so often that it’s very hard to make large long term commitments from a production location point of view, knowing where it is today. Now, with regards to R2, I do want to just say, because a lot of these discussions around a more protective tariff structure are already happening, when we sort STAR2, it’s a very USMCA centric supply chain. And so, it’s already contemplated a lot of what’s happening today. And we made those decisions going back to summer of twenty twenty four.

And so, we think we’re relatively advantaged as we compare to other manufacturers in this way. Now, if the consumer facing credits go away, I think that in the short term maybe creates a little bit of turbulence. But in the long term, the shift to electrification is going to happen. The key for us is it’s not a it’s strangely become like a topic of debate like is the world going to electrify. Of course, it is.

The entirety of every vehicle produced on the planet will be electric. We get to debate whether that’s in ten years or in fifteen years or in twenty years, but it’s going to happen. And I of course, I tend to believe it’s going to happen quicker than some of the more bearish points of view on this. Now, as that happens, we need to have choice. It’s when you look at the market as it is today with Tesla commanding around 50% market share, that’s reflective of a market without choice.

It’s reflective of a market with a singular grade option. And so we badly need choice. We need choice that looks different than each other, meaning R2 is intentionally very different than a Model Y. It’s similar price point, similar size, but they couldn’t be more different in terms of how they present in terms of design, in terms of feature and features in terms of content, the overall brand presentation. And that’s a very good thing.

It’s not to say one’s better than the other. It’s just to say that it gives customers a different perspective. And the scale that R2 brings will help us not only improve profitability of help it achieve profitability on a much lower book below material cost structure and a much lower non below material cost structure, but that translates immediately over to R1. So, there’s a number of suppliers that are supplying both R1 and R2 and the capacity and volume we add for R2 helps provide another step change in cost structure on R1. And then the non billet materials COGS, so that’s the conversion costs, inbound logistics, everything associated with building the vehicle that’s not billet materials on parts.

We get a huge advantage of being able to spread those costs around more volume. So we’ll see another benefit to R1 that comes with R2 there. And so, Claire and I have guided to say 2027 is going to be positive EBITDA. We continue to maintain that guidance. We’re very bullish on that.

And these are relatively deterministic things, meaning we’re not wishing for this or hoping for it. We’ve negotiated our bill of materials. It’s nearly 100% negotiated for R2. We can contemplate medium to worst case scenarios for tariffs. And we very clearly understand our fixed cost structure for running normal from running our plant to normal and understand what additional volume will do to spread those fixed costs across more units.

And maintain a lot of confidence there.

Unidentified speaker: So maybe just before we dive deeper on the R2 economics, I wanted to briefly touch on the R1. So you launched the gen the second generation version of, in the second half of twenty twenty four. Q4, I think the first full quarter with that version. And so you had previously noted there was a real focus on costs, including material costs. There were hundreds of engineering design modification in that new gen.

At a high level, obviously, the cost of goods sold per unit fell considerably. But part of that was D and A, and the contribution margins remain negative. So how should we think about the road ahead for R1? And where do you see the biggest opportunity to further improve the return profile?

RJ Skarinje, Founder and CEO, Rivian: It’s a great it’s an important question and a great question. So if we look at Q4 of twenty twenty four relative to Q4 of twenty twenty three, we took about $30,000 in COGS out of the vehicle just over. And as you pointed out, a big component of that was we resourced more than half the bill of materials who brought in new suppliers. And along with those new suppliers, we also made changes to the component designs. So the one we’ve talked about a lot is the shift to a consolidated set of ECUs where we went from 17 in house ECUs in our R1 Gen one to seven in house ECUs in R1 Gen two and took out a tremendous amount of wiring harness.

But that extends until we integrated a heat pump. We completely redid the battery pack. We updated the drive units, brought everything completely in house in the drive units. So it’s just like changes across the vehicle. And that allowed us to take the cost out that I just referred to that $30,000 in COGS.

Now there’s further changes that are coming. So there’s further improvements that are going to be happening quarter over quarter. We’ll continue to see those on the bill of materials. And I talked about it a moment ago, but a further step changes, the volume increase that we see with R2. And so the economies of scale that R2 helps provide to the business isn’t just important for R2.

That’s a foundational element for R1. And so I’ll take even like the center information display screen. We’re using the same supplier between R1 and R2. You can imagine there’s a lot of cost savings that we can negotiate in the R1 product because we’re also sourcing R2 for a similar form factor and similar screen. That’s on the BOM.

The other big, big driver here is the non BOM items. And we’re sharing a paint shop. We’re sharing our stamping operation. We’re sharing a bunch of the management infrastructure and quality infrastructure in the plant. And the ability to share not only that CapEx, which ties to depreciation, which is a non cash item that we see in our COGS, spreads that out evenly.

But importantly, the cost of all the labor, the cost of our management infrastructure, the cost of the overall running of the site gets spread now across a much higher volume level. And so the combination of those two support us continue to be very bullish on the long term gross margin trajectory. We’ve talked about the automotive business being north of 20%. We continue to be very confident in that. And what we’re also beginning to see, which is an important point to note, two things is the structural advantages that come from this very high degree of vertical integration, which in the beginning, at lower volumes are actually quite painful because you have a lot of fixed costs that doesn’t get absorbed across a lot of volume.

But as the volume starts to come up, we reach this inflection point where suddenly these things that we’re building in house and developed in house become a real profit driver. So that’s one. And then the second, in a similar way, there’s a bunch of aspects of our business that we have built in house that don’t exist in traditional car companies outside of Tesla. And that’s essentially everything that exists downstream of the plant. So distribution, sales, service, these are all heavy builds in the beginning to build out the infrastructure.

And on the distribution and sales side, our cost to deliver and sell a vehicle is far lower than using a third party, so paying a third party to do it for us. And so we’ll start to see the difference of us costing a couple of percent to sell and distribute a vehicle versus paying a third party, let’s say, 10% to 15% that will start to show up. And And then secondly, we’ll start to see service become a real contributor to our profitability. And of course, I think it’s well understood the service side of the automotive business is very profitable. This is where a lot of dealerships make a vast majority of their profit.

In all the same ways, this is going to be a big source of profitability for us. We’ve seen that happen with Tesla, of course. We’re going to start to see the same. But in the beginning, it’s all OpEx. And as slowly as it starts to be revenue generating transitions to COGS and then, of course, it’s highly thoughtful COGS.

Shreyas: Maybe on the point of the R2, so you’ve talked about a pretty substantial reduction in material cost of 45% reduction versus R1. I wanted to touch on a couple of areas. One is the battery and the other one is the electronic architecture. It’s on the battery that maybe talk a little bit about the decision to transition to a 4,695 cell structure. I think you’ve been using 2,180 previously.

And I guess how you’re thinking about the ramp curve for that cell? I mean, we’ve seen Tesla, for example, building their own 4,680 cells and they have made progress, but it’s taken a little bit of time.

RJ Skarinje, Founder and CEO, Rivian: Yes. Just to repeat something you said just to make sure it’s very clear. The R2 bill of materials is about half that of the R1 bill of materials. And that’s our current state R1, meaning with all these cost reductions we’ve made, we’ve still been able to take roughly half of the cost out again to deliver on a similar, call it, as much as you can, like for like R2 to R1 in terms of content and range. And then in terms of non billed material COGS, it’s well under half of what R1 is.

So the cost structure R2 is just meaningfully more advantage than what we saw in R1. And the big component of that, which I’ve referenced a few times here and I just want to reiterate this is supplier leverage. When we negotiated the R1 bond the first time, this was in 2018, ’20 ’19, we had very little I mean, it was unclear who Rivian was. We had no customers. We’d just shown the products at the auto show, but that was really it.

So, there was a lot of risk embedded in the price that we paid to our initial suppliers. And we anticipated being able to negotiate that down following launch and the success of the products being pulled from so much demand for our products. But with COVID and the supply chain crisis that hit, it just made that process much more elongated than we anticipated. In contrast, if we look at R2, the amount of leverage we have in these negotiations is it’s night and day in every way. We’ve seen R1 be highly successful in The U.

S. Market where it’s as I said before, it’s in terms of premium products, one of the best selling products out there, the R1S being the best selling premium SUV. So the suppliers recognize that and we’ve seen that built into pricing. Of course, it was really helpful that we signed a $5,800,000,000 software licensing deal as part of our joint venture with Volkswagen Group. So that was a huge validation of our technology and of course a massive vote of confidence from the second largest car manufacturer in the world.

And that all led to a bill of materials that’s really advanced relative to R1. Now saying that, there’s also a bunch of design changes that have been integrated into the very core of how the vehicle is built. And so you asked about the electrical architecture and battery. On the electrical architecture, we’ve taken what we did on the Gen two of R1 and we continue to push that further. And in fact, in our last earnings letter, we put a few pictures of some of the computers, the PCBAs between our what we call Gen one, Gen two and then R2.

And just visually, you can see they’re getting smaller and smaller and smaller. We’re getting far more efficient in how we design those. We’re putting more of the content onto the chip itself. And that’s taking a lot of cost out. And we’re seeing that across every ECU and every part of the vehicle.

And of course, the Volkswagen partnership actually helps that as well. But in terms of the batteries, you said we’re using a cylindrical cell, which is much larger diameter. It’s a 46 millimeter diameter relative to the 21 that we’re using in R1. And then it’s a taller cell. So, we’re using a 95 millimeter tall cell.

So, it’s 46, 90 five instead of the 70 millimeter tall cell that we use with the R1 vehicle. And so, that larger diameter, larger height or higher taller height means that there’s more energy in each cell, which means we need to really be thoughtful on how we manage those cells from a safety point of view. But the cylindrical form factor is actually very safe in that it helps contain the large amount of energy quite effectively. We’ve designed a cooling system that really works around that. But importantly, it massively reduces the number of joints, so the number of cells that need to be attached in the system.

Our max pack of R1 has 7,776 cells. And depending on the configuration, R2 has depending on battery pack size is low hundreds of cells. And so that’s a simplification. It allows the modules to be simplified. It allows the pack to be simplified.

And then we’ve really done a lot of work on the high voltage architecture within the pack. And so we’ve integrated the DCDC, the DCAC, the ACDC. All of that has been integrated into one housing that sits attached to the battery pack, which limits the amount of cable runs. And so it’s just as I’m actually I’m going to I’ll probably put a picture of this up on social sometimes because it’s just so cool. It’s like this beautiful integration of all these parts that used to be separate boxes into one housing.

It’s a large high pressure die casting housing that puts all that together. And I mean, it takes a huge amount of cost out of the high voltage architecture relative to what we have in our one today.

Shreyas: Okay. That’s helpful. And maybe this actually kind of dovetail on that. Just all of the changes you’ve made, obviously you’re bringing down the price point as well with R2 that’s going to open up a bigger TAM. So you know, how do you think about the how do you think about kind of scaling production at the normal plant?

Yeah. You know, and then also, is there a risk that normal could reach factory constraint before your Georgia plant comes online, which will also carry R2 as well as R3?

RJ Skarinje, Founder and CEO, Rivian: Yes. Well, we hope that normal reaches a production constraint as soon as possible. And so that’s the goal. And we do believe that’s going to happen, which is why we’ve talked about this book, the importance of Georgia in bringing on additional capacity above and beyond what Norwalk can provide. And just for everyone on the line, Norwalk has R1 in it today.

It has our commercial van in it and we’re adding R2. And the combination of those three will have a capacity of just over 200,000 units a year. And so, we think of it like a nominal capacity without really stretching into heavy overtime of 215,000 units a year. We’re going to try to push that as much as we can to get beyond that. But of that 155,000 are R2.

And again, these are opportunities for us to push harder, but that’s what it’s designed capacity. And the reason we’ve planned a ramp of this that’s, I’d say, faster than what we did in R1, but very intentionally goes from starting with a single shift and then starting in 2026 early ’20 ’20 ’6 with a single shift and then adding a second shift in the latter part of 2026. And the reason for that is the learnings we had around the importance of scaling the supply chain and scaling it in a thoughtful and predictable way. Some of our biggest pains we had in 2023 and even into the beginnings of 2024 were just the supply chain not all ramping at the same rate. And we often think about that as if you’re short a part and you can’t make the vehicle, that is a challenge.

That’s a downside. That’s a problem with the supply chain that’s not ramping consistently as fast as you want. But the other problem is you have a bunch of the other parts that are still coming. And so you have to consume all these parts in this inventory while you wait for the constrained part to catch up. And so it’s very challenging when you think about thousands of parts.

If you think of it as like discrete components, not source parts, it’s tens of thousands of parts where any single one of those can stop production across hundreds of suppliers. It’s a real orchestra of activity. And so with R1, we were learning for the first time when we launched the R1T, R1S and EDB. We launched them all really in close proximity. And ingesting that much complexity was very difficult.

So with R2, we’re launching a very narrow set of build combinations, just R2. We’re pulling in R3 after we’ve fully ramped. And then we’re planning our supply chain and working with them very hard right now to make sure they’re ready for this one shift to then two shift step that will happen in the latter part of 2026. Maybe We need it to be a very smooth launch and we’re busting our tails to make sure it’s as smooth as possible.

Unidentified speaker: Yeah. That makes sense. I wanted to maybe touch on the EDV and the commercial van business. You’ve got the partnership with Amazon. I think you’ve delivered 20,000 vehicles so far.

The order was 400,000, so there’s still more room to fill that out. And you do have engagements with other fleet operators that you’ve spoken about. I believe capacity is for 65,000, but that can be flexed down for Archer. So how do you think about the addressable markets now and the mid to long term opportunity there?

RJ Skarinje, Founder and CEO, Rivian: Yes, Emmanuel, as you suggested, we’re planning to adjust down the total output of EDV. And so if you think about the normal plant, R2 will represent the vast majority of production with 155,000 of the two fifteen thousand. And then the remaining capacity that’s in the plant, what we’ll use that for is a combination of R1 and the commercial van, but most of that will go towards R1. And so that’s really reflecting the commercial vehicle space and the commercial van space electrifying slower than we anticipated. And I think some of the macro headwinds that we’re seeing, both in terms of policy and I think also in terms of sentiment, mean that that space isn’t electrifying as fast as what we thought it would do.

But as you call out, I mean, Amazon is a great anchor customer for us. Because of them as an anchor customer, we were the top selling by volume electric van in The United States in 2024, which just as that demonstrates that the market is we were the highest selling and we weren’t selling 100,000 vans. We were selling a much smaller number than that. So it reflects just this space even with us being the market share leader. It’s just electrifying more slowly than we had originally thought and hoped.

But it’s an amazing product. And so we’re starting to see more customers outside of Amazon start to use it. But we are seeing some of the bigger fleets be more cautious in their own electrification plans relative to what they thought they would have done, let’s say, a year ago.

Shreyas: Maybe just switching over to the software and services. Maybe we could just start with the Volkswagen JV. And we get this question a lot from a, in terms of the strategic perspective of the deal. And I guess, you know, when we think about Raveon and I think you talked about this a little bit earlier, one of the strongest attributes that you have is the ECU architecture that you’ve built almost entirely in house. You own the entire software stack, including the base operating system and middleware.

You design your own zonal controller. So certainly those these are things that legacy OEMs have not done and in some cases may not have the ability to do. You’re we’re working with Volkswagen where they’ll be, you’re co developing an architecture that actually now will be going into their vehicles, I believe in 2027. And they’re also competing with you in North America via the Scout brand. So maybe just talk about the benefits that you see of this joint venture relationship beyond the capital injection part of it, which I think we all look at.

And also how you think about Rivian’s ability to maintain a competitive advantage in software and network architectures?

RJ Skarinje, Founder and CEO, Rivian: Yes. Well, the partnership that we’ve built with Volkswagen Group has been I referenced earlier, it’s been, of course, focused and the deal is, of course, designed around our network architecture. So, it’s our zone controllers, what we think of as like our experience management module, essentially what runs the infotainment platform. And then the various layers of software that exist on those platforms. And being able to deploy that at scale across many different price points, different vehicle form factors and across many different markets, of course, outside The United States as well, is great for us because it sees our technology driving impact in other markets.

And it’s like very mission aligned to do that. What it also does is it think of it as like a front door into a really deep relationship where there’s other benefits that come. Of course, there’s the efficiencies from a supply chain point of view of having a lot more volume on some of those shared components. So you can imagine some of the SOCs that we’re using across those compute platforms having volumes that are much, much larger. The volumes of building the PCBAs, the printed circuit board assemblies at the contract manufacturers now have a lot more volume.

And extending beyond that into the items that are driven by that, so some of the electromechanical systems that come out of the electrical hardware, there’s now likelihood of more alignment of sourcing and therefore more volume. And so, we see it as a really helpful corporate partnership that we have that extends and builds beyond just the joint venture. And of course, Volkswagen also has equity ownership in Rivian now as well as part of this deal. And so that’s helpful. It’s really helpful.

And I said it before and I’ll say it again. I think far too often we look at the market side of this and we it’s actually why this keeps happening, but we sort of assume that there’s like a one winner or one player take all. And I think maybe it’s because we’ve been trained in tech, in traditional tech that that’s how it works. So it is going to be a dominant search engine platform, there’s going to be a dominant e commerce platform. But in transportation, we just really don’t believe there’s going to be a single dominant vehicle brand.

And that if there was, it would reflect a very significant shift in consumer behavior from what we’ve seen for the last hundred years, meaning in The United States market, there’s 300 different choices of ICE vehicles in terms of nameplates. And we think that level of product diversity is going to be necessary to go from 8% electrification to 100%. And so to date, it’s largely been Tesla. As I talked about, the lower price points has been other products, but they haven’t been particularly compelling. So to the extent that like our technology helps Volkswagen Group make highly compelling products, which ultimately will give customers choice, we think that’s great.

We think it’s going to be helpful to drive the overall shift in electrification. We think it’s this is a very clear example of a rising tide will help all players in the space. And so like as it pertains to scout, we’re of course part of that program and that’s part of our work with the joint venture. Does that feel like it’s close to Rivian? Maybe.

But I think the reality is the products are being designed and differentiated and branded and positioned differently than Rivian products. And I think customers need that choice. I think it’s going to be a really good thing for customers in the end.

Shreyas: Okay, that’s helpful. And then maybe just, we just have a minute left here, but I was curious about your opportunity in software and services across your own fleet, right? So I think about, this year you’re talking about a billion of revenue in software and services that you can generate. About half of that, I believe, is coming from, your own revenue you’re going to generate through service and software across your fleet. How do you see that kind of scaling over the next few years?

And do you think ADAS could play a big role in generating incremental software and subscription revenue for you?

RJ Skarinje, Founder and CEO, Rivian: Well, Shreyas, I love the question. We just coincidentally about a week, maybe two weeks ago, we launched what we call our hands free mode. So our Gen two vehicles have a massive shift or upgrade in the hardware on the vehicle. So we went and vertically integrated our camera stack. We have a much more powerful compute stack.

And so the Gen two vehicles have 55 megapixels of cameras, which is more than any other vehicle in North America. We have five radars, including a front imaging radar in the four corner radars. And then we have a really robust compute stack, which is powered by NVIDIA in terms of the in vehicle inference. And the headroom that that gives us in terms of capability is just remarkable. And so the first sampling of that, and I use the word sampling intentionally because it by no means represents the end state, it’s really the beginning, is by hands free capability where you get on the highway and previously you’d have your hands in the wheel, you could take them off for fifteen seconds, but you’d have to put them back on.

You can now have your hands off the wheel for the whole ride. And that’s going to that feature set will that capability will grow from a hands free highway to increasingly approaching turn by turn, so you can navigate from your house to the final destination in a hands free eyes on environment. And then next year in 2026, we’ll start to go hands free turn by turn plus hands free eyes off highway, which is a true level three highway, which means, of course, your hands come off the wheel, but your eyes can also go anywhere. They can be on a phone, they can be in a conversation, they can be reading a book. And so the speed at which this is developing is just remarkable.

And the big shift and I’m surprised this doesn’t get more focused attention, but the way that self driving was developed up until really only about two or three years ago was it was very rules based and it was very sequential meaning. You had cameras that identified objects, classified them, associated vectors with those objects, that collection of objects that went into a planner, the planner then made decisions that were all rules based around what to do. Those decisions would then get translated into a control strategy that the vehicle would then operate following the direction of the planner. And what’s changed so much is we now use AI to build a much more robust large perimeter model. I think of it as a foundation model for the real world.

We build that with lots of data coming off the vehicles. And that large parameter model gets distilled down into a more a smaller parameter model, something that can be handled by the in vehicle inference. And the vehicle is trained using that with this end to end process. And we no longer have to make all these individual steps in between. And the speed at which it develops the capabilities develop is just remarkable.

And it’s the same shift that we saw in the LLM world where we’ve had voice assistants for years, but they were always a little bit clumsy. And then we started training end to end. We used modern transformer techniques. We thought about how we build these systems from a neural net point of view. And it was like a light switch went off.

And so, we think the same is happening in self driving. And so, saying all that, the big question, which is your question, is what can be charged for this? And I think in the long, long term, who knows, it could be built into the vehicle price. We think it’s going to be table stakes. So if we say like in the 2030s, I think it becomes table stakes that vehicles can do hands free eyes off turn by turn.

But in the next five years, I do think there’s an incremental ability to charge significantly for these features where customers are willing to pay because it is creating real value for them. And I think a few companies will have differentiated capabilities here. Of course, we believe we’re one of those. And because it will be a subset of the full breadth of product offerings out there, we think there’ll be this differentiated ability to monetize that capability. And so we’ve talked about this with our customers.

We said, look, we’re going to today, our driver plus features is included. We’ll start to charge for it and we’re going to wait until the capabilities are so strong that it earns the right to have customers pay additional money for us to deliver that feature.

Shreyas: Okay, great. I think we’re just at time. So I think, yeah. So pass it over to Emmanuel.

Unidentified speaker: Yeah. RJ, thank you so much for joining us. We really appreciate your time and insights. And thanks everybody for joining.

RJ Skarinje, Founder and CEO, Rivian: Well, thank you guys. Enjoyed it.

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