Rivian Automotive - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 delivered Rivian’s second consecutive positive gross profit at $206M and a 17% gross margin, supported by segment-level gross profit in both Automotive ($92M) and Software & Services ($114M).
• Strong top-line and EPS beat vs Wall Street: Revenue $1.24B vs $1.02B consensus (+21%), GAAP EPS -$0.48 vs Primary EPS consensus -$0.74; Adj. EBITDA loss -$329M improved YoY and sequentially from Q3 (Revenue consensus, EPS consensus, EBITDA consensus*) .
• Guidance adjusted: deliveries lowered to 40–46k (from 46–51k), capex raised to $1.8–$1.9B (from $1.6–$1.7B), Adj. EBITDA loss maintained at -$1.7 to -$1.9B; FY 2025 modest positive gross profit target reiterated.
• Strategic catalysts: $1B expected investment from Volkswagen Group unlocked by meeting gross profit milestone (funding expected June 30, 2025); R2 development advancing with Normal plant expansion and supplier park; Autonomy platform roll-out and AI-centric roadmap announced (AI & Autonomy Day planned for fall).
• Macro headwinds and tariff exposure drove delivery guide-down and capex raise; management highlighted battery sourcing transition for R2 cells to U.S. by early 2027 and resilience plans around rare earths and supply chain.

Note: Values retrieved from S&P Global for consensus metrics.*

What Went Well and What Went Wrong

What Went Well

• Achieved highest quarterly gross profit to date ($206M) and 17% gross margin; second consecutive positive gross profit, with both segments profitable (Automotive $92M; Software & Services $114M).
• VW JV milestone unlocked: Expected $1B VW investment as part of JV funding due to gross profit achievement; incremental capital stack outlined (VW + DOE loan + ABL) to fund through R2/R3 ramps.
• Autonomy/AI execution: Launched hands‑free, eyes‑on highway driving; management emphasized AI-centric, end-to-end training architecture and planned AI & Autonomy Day in fall ("the metaphorical plumbing for training our AI driving models is in place").

What Went Wrong

• Deliveries reduced: Q1 deliveries were 8,640 due to prior pull-forward of commercial vans in Q4 2024 and challenging demand backdrop, prompting FY delivery guide-down to 40–46k.
• Tariff headwinds: Per-unit tariff impact of “a couple of thousand dollars” in 2025 despite reimbursement programs; capex guidance raised to $1.8–$1.9B to address expected tariff impacts.
• Inventory and depreciation dynamics: Depreciation in COGS fell to $75M largely due to absorption into inventory; finished goods inventory rose ~$563M, while raw materials fell ~$220M, complicating margin optics.

Transcript

Operator (participant)

Welcome to today's Q1 earnings result hosted by Rivian. At this time, all participants are in a listen-only mode. After the speaker's presentation, we will conduct a question-and-answer session. I'll now turn the call over to Derek Mulvey, Vice President, Finance.

Derek Mulvey (VP of Finance)

Good afternoon, and thank you for joining us for Rivian's first quarter 2025 earnings call. Today, I am joined by RJ Scaringe, our CEO and founder; Claire McDonough, our chief financial officer; and Javier Varela, our chief operations officer. Before we begin, matters discussed in this call, including comments and responses to questions, reflect management's current 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 law. 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 the shareholder letter which we filed today with the SEC. 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 this earnings call, we published and filed our shareholder letter, which includes an overview of our progress of 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 (Founder and CEO)

Thanks, Derek. Hello, everyone, and thanks for joining us today. During our call, I will highlight key developments in the first quarter and provide an update on the progress we're making against our value drivers. First, I'm excited that Rivian delivered a second consecutive quarter of positive gross profit, with a gross profit of $206 million. This reflects an outstanding effort from the team and a continued focus on cost and operational efficiency. Rivian has now met the gross profit milestone with Volkswagen Group and expects to receive $1 billion in funding at the end of June, which Claire will provide more details on in her remarks. Customers continue to love our brand, our vehicles, and our products.

In the first quarter of 2025, R1S remained the best-selling SUV, with a starting price over $70,000 in California, and the R1S was the number one best-selling electric SUV in the United States, with a starting price over $50,000. Part of what customers love about Rivian is the seamless integration of technology into the product experience and the enhancements that come with our over-the-air updates. One of our most critical technology focus areas, which customers will start to see the output of, is our Rivian Autonomy Platform. With the launch of our second-generation platform, we entirely changed the perception stack and compute. Our R1 vehicles now have 55 megapixels of cameras and more than 200 TOPS of onboard inference. We designed this platform around an AI-centric approach, where the vertically integrated technology hardware has enabled us to build a data flywheel for training our model with an end-to-end approach.

With the scale of our second-generation fleet growing, the strength of our robust sensor set feeding our data flywheel is enabling an important acceleration to our technology. The metaphorical plumbing for training our AI driving models is in place, and the resulting benefits are just starting to be seen. We believe control of the data flywheel and associated autonomy platform will be important for autonomy development, which we expect to have a greater impact on consumer purchasing decisions as we look towards the second half of this decade. We recently launched hands-free eyes-on driving for our second-generation vehicles for highway driving, and this is the very start of a steady stream of ongoing enhancements which we plan to make. We are focused on delivering turn-by-turn autonomy as quickly as possible while expanding from hands-free eyes-on to hands-free and eyes-off.

We believe eyes-off functionality and autonomy in urban settings will enhance the overall product experience. Considering our broader AI work, including Rivian Autonomy, there are several product and technology advancements which we've been working on but not yet shown or discussed. This fall, we plan to host an AI and Autonomy Day, where we'll share more of our product and our technology roadmap. I'm really excited to reveal more of what we're doing here. As Rivian continues to innovate through AI, I'm also excited to announce Aidan Gomez is joining our board of directors. Aidan is the co-founder and CEO of Cohere, and he brings extensive experience enterprise-wide across AI and is a terrific addition to our board.

In parallel to technology development, Rivian is making significant progress in R2, including the start of our validation builds and the continued work on a 1.1 million sq ft expansion to our Normal, Illinois, manufacturing facility. We also announced the construction of a 1.2 million sq ft supplier park in Normal, for which much of the building's construction is complete. This supplier park will help us further reduce costs for our Normal production. Next year, we plan to start construction on our Georgia facility, which is planned to provide an additional 400,000 units of annual capacity for R2 and R3 once fully built out. Rivian's long-term investment in technologies such as autonomy, software, electrical hardware, and propulsion has provided substantial cost and performance advantages. For example, our development of the R1 zonal network architecture and associated software is the foundation of what's going into R2.

With the expected scale of R2, our investments in this technology begin to build a structural cost advantage, which is a core element of delivering R2 at a price point expected to start at $45,000. Rivian's enterprise readiness for R2 stretches beyond just technology, design, and manufacturing for the product. It spans the entire organization as we scale our systems, processes, and infrastructure for rapid growth. I couldn't be more excited for R2's launch. Last week, I was driving an R2 prototype, and the vehicle is just incredible. Looking externally, the global trade, regulation, and policy environment is also top of mind. This is complex, multi-layered, and rapidly evolving. It impacts our global supply chains, trade, and consumer sentiment. We have 100% U.S. vehicle manufacturing, and a majority of our bill of materials, excluding cells, are sourced from the U.S. or USMCA qualified.

However, we are not immune to the impacts of the global trade and economic situation, which we expect to impact material cost, material availability, capital expenditures, and the demand backdrop. Importantly, as previously announced, the LG battery cells for R2 will initially be produced in Korea, but these cells are expected to be produced in Arizona starting by early 2027. With thousands of employees in the U.S. and more than 2 million sq ft of new construction underway at our Normal, Illinois, campus, Rivian shares the president's excitement in expanding domestic manufacturing capacity and continued U.S. technology leadership. I can't wait for R2 and the long-term potential of our mid-size platform, which we will build in our Illinois facility and future Georgia facility. Lastly, thank you to our employees, customers, partners, suppliers, communities, and shareholders for their support. With that, I will pass the call over to Claire.

Claire McDonough (CFO)

Thanks, RJ. I also want to thank our team for a tremendous quarter. As RJ mentioned, in the first quarter of 2025, we achieved $206 million of gross profit, which resulted in the second consecutive quarter of positive gross profit. This fulfills the gross profit milestone associated with the next $1 billion of funding expected from Volkswagen Group in association with our joint venture. This positive gross profit is the result of the hard work of our teams as we continue to focus on driving cost efficiency throughout the business. Importantly, when we isolate the first quarter performance of our automotive segment, we generated positive gross profit, excluding the impacts of regulatory credits and depreciation.

While our gross profit levels may vary over the next few quarters, given some of the policy impacts we expect to experience, we believe this milestone is reflective of the progress we have made, taking cost out and driving towards profitability. As we look forward to launching R2, we expect a faster path to profitability as compared to R1, and we also expect that the volumes of R2 in our Normal facility will help lower the total fixed cost per unit across all vehicles coming out of the Normal plant. In the first quarter of 2025, we produced 14,611 and delivered 8,640 vehicles from our manufacturing facility, which was the primary driver of the $922 million of revenue in the automotive segment.

As previously stated, first quarter deliveries decreased due to delivery of more EDVs than is seasonally typical during the fourth quarter of 2024, resulting in limited EDV delivery volumes during the first quarter of 2025. This impact on automotive revenues was partially offset by increased average selling prices due to proportionately higher consumer deliveries, as well as an increase in the sale of automotive regulatory credits. Total software and services revenue for the first quarter of 2025 were $318 million, primarily due to new vehicle electrical architecture and software development services, remarketing sales, and repair and maintenance services. Our total gross profit was $206 million, our highest quarter to date, which includes $92 million from automotive gross profit and $114 million from software and services gross profit.

Our Adjusted EBITDA losses were -$329 million as a result of the ongoing investment we are making to develop R2 and our key technologies, as well as the continued growth of our sales and service infrastructure and organization. These operating costs were partially offset by our $206 million of positive gross profit. As of March 31, 2025, we had $7.2 billion of cash, cash equivalents, and short-term investments. In addition to this, we expect to receive up to $3.5 billion of incremental capital associated with our joint venture with Volkswagen Group, up to a $6.6 billion loan from the Department of Energy associated with the build-out of our Georgia facility, and have access to $1.3 billion of availability under our ABL facility that we recently amended and extended through April 8, 2030.

Included within the $3.5 billion of incremental capital expected from the Volkswagen Group is a $1 billion investment related to the gross profit milestone we achieved in the first quarter of 2025. Subject to customary closing conditions, Volkswagen Group is expected to invest $1 billion in Rivian Common Shares at a 33% premium to our stock price based on the volume-weighted average stock price from May 15 to June 27, 2025. The investment is expected to be funded on June 30 of this year. We believe external factors such as changes to government policies and regulations, macroeconomic impact on consumer behavior, and supply chain impacts from trade and tariff policies could impact our 2025 expectations. We are also monitoring potential impacts on our production due to the export restrictions on rare earth materials coming from China.

We are actively monitoring these developments and working to mitigate potential risks through a variety of initiatives, including strategic sourcing and proactive engagement with policymakers. While we expect tariffs to impact our material and trade duty costs, with respect to batteries, we currently believe we have enough cells in the U.S. for production through 2025 and into early 2026. In addition, we plan to source our R2 4695 cells from LG, which, as RJ said, we expect will be manufactured here in the United States by early 2027. While uncertainties persist, we remain focused on executing against our key value drivers and are confident the global car park will fully electrify in the long term. Our guidance represents management's current view of evolving trade regulations, policies, tariffs, and the overall impacts these items may have on consumer sentiment and demand.

As a result of these impacts, we have revised our delivery outlook to 40,000-46,000 vehicles. Due to our strong first quarter results, we are maintaining our outlook range of Adjusted EBITDA of -$1.7 billion to -$1.9 billion. We also continue to expect to achieve modest positive gross profit for the full year of 2025. In addition, due to the expected impact from tariffs, we are raising our capital expenditure guidance to $1.8 billion-$1.9 billion. We remain on track with the expected shutdown to both our consumer and commercial manufacturing lines in our Normal plant for approximately one month in the second half of 2025 to prepare for the launch of R2 and Normal in the first half of 2026.

This is the first line of production for our new mid-size platform, and as a result, we intend to operate R2 on a single shift of production for the majority of operations in 2026. Thank you to our team for delivering a great quarter. We remain steadfast in our belief that R2 will be truly transformative for our growth and profitability. I'd like to turn the call back over to the operator to open the line for Q&A.

Operator (participant)

For the Q&A section of today's session, we will be utilizing the raise hand feature. If you would like to ask a question, click on the raise hand button at the bottom of the screen. Once prompted, please unmute yourself and begin with your question. As a reminder, we are allowing analysts one question and one relevant follow-up. We will now pause a moment to assemble the queue. Our first question will come from Dan Levy with Barclays. Please unmute your line and ask your question.

Dan Levy (Senior Equity Research Analyst)

Hi, good evening. Thank you for taking the questions. I wanted to first start with a question on batteries and the tariff impacts. I appreciate the disclosure that you have enough cells to get you through into early 2026, but perhaps you can give us a sense thereafter what your strategy is, especially around LFP. I appreciate that you do have the cells for R2 eventually going to be from the U.S., but what's your strategy around LFP? If you could just confirm, are the LFP cells tariffed as an automotive product at 47.5% or as a non-automotive product at 145%?

RJ Scaringe (Founder and CEO)

Yeah, thanks, Dan, for the question. Yeah, certainly we've been spending a lot of time looking at just the overall landscape around trade, and certainly that has a big impact on battery tariffs. For us, as you said, through the end of 2025, we have inventory that provides us resilience to any increases in tariffs. As we look at 2026, very importantly, with the launch of R2, the 4695 cell that we're using is initially sourced out of Korea, but we've been for a while now working very closely with our partner on this, which is LG, to localize that into the United States. Starting in 2027, those cells will be produced in Arizona. That is outstanding for us in terms of the long-term cost structure for R2.

As it pertains to R1, both with the 2170 cells that we're using as well as the LFP cells, this is something where we're actively working to address some of the changes in trade, and we have the flexibility to be looking at alternatives and to be thinking around how do we evolve our cell sourcing strategy for R1 as we look at 2026 and beyond.

Dan Levy (Senior Equity Research Analyst)

Okay, thank you. Second question is also on the theme of tariffs. A, the $3,000 I think that's out there, what period is that for, what vehicles? B, if you could just talk too broadly how you see the COGS of R2 being impacted. Appreciate the battery commentary, but what other cost considerations are there R2? How dramatically does this change the cost structure for R2?

Claire McDonough (CFO)

Sure, Dan. We expect the per unit direct impact from tariffs to be a couple thousand dollars for 2025 based off of the currently announced tariffs in place. As you can imagine, we're exploring a number of offsets to those cost increases, including strategic sourcing decisions, as RJ conveyed related to some of the batteries over the longer term. Beyond those strategic sourcing decisions, we also have the opportunity to explore opportunities for us to see how we're deploying our incentive spend or drive improved mix, which will help further offset some of the impacts from tariffs themselves as well. Maybe I'll invite Javier to jump in as well as we think about R2 sourcing, where there's certainly more opportunities in the longer term for us to strategically adjust some of our sourcing strategies and approach to mitigate some of the longer-term impacts.

Javier Varela (COO)

Yeah, thank you, Claire. Yeah, we have been working for a while in getting a more resilient supply chain, and as a result, we are sourcing from the U.S. and the USMCA qualified region heavily. Though there's some flows coming from overseas, for those flows, we typically use global suppliers that they have facilities in the three regions: in Europe, in Asia, and in North America. We still have time to relocate or study some of those flows in the next months before the launch of R2.

Dan Levy (Senior Equity Research Analyst)

Great, thank you.

Operator (participant)

Our next question will come from Adam Jonas with Morgan Stanley. Please unmute your line and ask your question.

Adam Jonas (Managing Director)

Thanks, everybody. First, RJ, I want to ask you about autonomy. The pressure to compete with Tesla just gets more and more intense as FSD makes further progress. How are you going to catch them and match them technologically with such a small fleet and less computing resources and having a later start on moving to end-to-end? How confident are you you can develop this in-house, or do you need an external partner to help speed things up?

RJ Scaringe (Founder and CEO)

Yeah, thanks, Adam. I appreciate the question. This is such an enormous focus area for us. As I said in my opening remarks, we couldn't be more excited about this part of the business. It's an area we've spent a lot of time on getting the plumbing in place, meaning getting the right sensors set with our Gen 2 vehicles that launched a dramatic improvement in sensors, a lot of onboard inference in terms of the compute level in the vehicle, and then, very importantly, that feeding our data flywheel. As we think about our performance and the need to grow our performance, the data flywheel is really important. It's not just how many vehicles are out there, but also the quality of the data coming off the vehicles.

The very high-performance cameras that we have that have great low-light performance, great bright-light performance, coupled with a multimodality approach to sensors where we have five radars, including a front imaging radar in the vehicle, allow us to make up for some of the fact that we have a smaller fleet. Of course, the fleet's growing, but make up for that with very high-quality data. As you alluded to, that training that happens for the offline model, the large parameter model that's happening through the data that's coming off these vehicles. We have seen incredible performance with just that in place. We have just started to—consumers are just starting to see some of the work that we're doing with the hands-free feature that we just launched.

Over the next year, as both the fleet size grows, the data flywheel I talked about continues to ramp up further and further. The efficacy of this really rich data set where we control the triggering events, so what data we take, and then we control what goes up, meaning we have—every vehicle, of course, has LTE, but a significant majority of our vehicles are also on Wi-Fi, so we can very cost-effectively move data from our car park into the cloud and then, therefore, use it to train our model. We are quite bullish on this. I think this data infrastructure I just described is very unique because we do not have any third-party camera systems or platforms that are in the middle of that that either obfuscate or create abstractions of the data.

We have raw data that goes up and allows us to really use that effectively for an end-to-end model with a pure AI-centric approach.

Adam Jonas (Managing Director)

Thanks, RJ. Just a follow-up for Claire. You called out rare earth supply specifically and said that you will explore strategic sourcing to mitigate. For rare earths, which are so critical for the powertrain specifically, what exactly are you doing, can you do in the event that China were to make sourcing of such materials or the processing upstream less available? I just want to know exactly what those efforts could be. Thank you.

RJ Scaringe (Founder and CEO)

Yeah, this is a complex issue, as you call out. It's something we're working on really thoroughly. And given that a lot of the processing of some of these heavier earth metals that are used in magnets, which is particularly important for an electric vehicle which is using permanent magnet motors, we're very close to this situation, and it's quite dynamic as we think about the overall trade environment. Now, saying that, there are an array of different solutions to solve this. I think, importantly for us, as we look out in the longer term, planning for R2, developing around heavier earth-free motors, so using different types of magnets that are more available. Then, of course, in the longer term, developing rotor assemblies that don't require rare earth metals. This has long been talked about as a technical topic.

I think we're going to start to see the beginnings of that start to reach commercial deployment. Certainly, some of these trade challenges are going to accelerate that.

Adam Jonas (Managing Director)

Thanks, RJ.

Operator (participant)

Our next question will come from Shreyas Patil with Wolfe Research. Please unmute your line and ask your question.

Shreyas Patil (VP of Equity Research)

Hey, thanks so much for taking my question. Just to clarify, I think, Claire, you'd mentioned $2,000 per vehicle of tariff costs. I just want to make sure I heard that right. Does that incorporate the latest U.S. manufacturing reimbursement program that the administration announced last week? If so, is the primary exposure as it relates to tariffs, is that primarily on batteries?

Claire McDonough (CFO)

Shreyas, as I mentioned, we expect a couple thousand dollars of impact per unit for 2025, and that does include the benefits from reimbursement that have been announced as well. You heard RJ talk a little bit about some of the longer-term sourcing opportunities that we have with R2 being sourced out of U.S. facility with LG and longer-term opportunities as we think about bringing more of our battery production onshore.

Shreyas Patil (VP of Equity Research)

Okay, great. I was wondering if you could maybe just help us think through some of the remaining material cost opportunities that you see with R1 and then as we kind of transition to R2. I know, obviously, last quarter, you had the launch of the refreshed R1. It looked like COGS per unit further improved into Q1 versus Q4. I'm just wondering how much of that was material-related and where you see additional opportunities, both for this program and then additionally for R2.

Claire McDonough (CFO)

Sure. In Q1, we saw a $3,300 per unit improvement in COGS. That was despite the fact that we had a higher concentration of R1 deliveries in Q1 relative to Q4. As you probably recall, our commercial van has a lower material cost associated with it. To be able to deliver that level of improvement despite some of the mix was formidable in nature as a whole. The key driver for us in Q1 was predominantly driven by some of the improvements that we've made in operational efficiency as well as the fixed cost leverage that we had in the quarter, given the higher production volumes with just over 14,600 units produced as a whole.

As we look forward from here, while we certainly will have some increases from tariffs that we spoke a little bit about, we do still anticipate seeing some raw material savings in the business as a whole as we work through the remaining quarters of 2025.

Shreyas Patil (VP of Equity Research)

Okay, great. Thanks.

Operator (participant)

Our next question will come from Joseph Spak with UBS. Please unmute your line and ask your question.

Joseph Spak (Managing Director)

Thank you, everyone. Claire, you mentioned auto gross profit, ex credits, and depreciation was positive. That is obviously a pretty good proxy for cash gross profit. That is encouraging. It did look, though, like the depreciation and amortization in COGS line was down quite meaningfully quarter over quarter. It has really actually trended down for a while. I just want to understand what is driving that and how we should think about depreciation going forward because you guys are still investing. I would have kind of expected it to move the other way.

Claire McDonough (CFO)

Sure. As you think about the dynamics of Q1, because we produce more vehicles than we delivered in the quarter, we absorbed more of our depreciation into inventory. That is one of the key drivers. If you looked on it on an aggregate basis, including the depreciation that went into inventory, the overall number still came down. However, a lot of what you're seeing in terms of the $75 million of COGS-related depreciation was driven by the absorption of that depreciation expense into inventory itself. As we look at.

Joseph Spak (Managing Director)

It's on the balance sheet?

Claire McDonough (CFO)

Yeah, it's predominantly on the balance sheet. We'll start to see depreciation pick back up once we start production of R2 next year as well. You will see more of a steady-state run rate in aggregate, excluding some of these impacts from absorption into inventory. We will see that ramp back up with R2 coming online.

Joseph Spak (Managing Director)

Okay. Maybe a good segue to the second question, which is you talked about the overproduction. You're mentioning this couple thousand dollar per vehicle tariff headwind. I mean, it seems like that overproduction probably helps you minimize the impact for the year, right, since there was probably a more minimal tariff impact in the quarter. I mean, rough math, it seems like it should probably be under $100 million total impact for the year. Is that ballpark correct? I guess I just want to understand if that's changed versus the, I think you mentioned last quarter, a couple hundred million dollar impact undisclosed from what, but related to policy.

Claire McDonough (CFO)

Yeah, Joe, as you take a step back and look at the overall policy impacts, the several hundred million of impact that we had baked into our original guidance was related to tariff expectation, consumer benefits from EV adoption, regulatory credits. There was a much broader basket, as is currently still the case as we think about the overall impacts for 2025 as a year. However, as we look at the overall tariff impacts, to your point, we had produced more vehicles than we delivered in Q1 to help offset some of the lost production in the back half of the year as we shut down our manufacturing facility for roughly a month to integrate R2 into the plant. We will have those vehicles, which largely do not have tariff impacts associated with them, to sell in subsequent quarters as well.

Joseph Spak (Managing Director)

Okay. Thank you.

Operator (participant)

Our next question will come from Mark Delaney with Goldman Sachs. Please unmute your line and ask your question.

Mark Delaney (Managing Director and Senior Equity Research Analyst)

Yes, good afternoon. Thank you for taking my questions. With respect to reducing the full year outlook for deliveries, can you help us better understand, is that based on weaker incoming orders Rivian has already been seeing or purely an expectation that the market is going to deteriorate going forward as you think about tariff costs and the effects on pricing as well as the broader economy?

RJ Scaringe (Founder and CEO)

Thanks, Mark. Yeah, there's a lot of uncertainty. I'd characterize it as there's a challenging backdrop from a consumer demand point of view. What we're seeing is the interest in our flagship product, R1, continues to be strong in that this is the R1 is the best-selling premium electric truck or electric SUV across the whole United States, over $70,000. It's the best-selling premium SUV, electric or non-electric, in the state of California. In terms of how our products are performing relative to alternatives in the market, we're doing extremely well. The challenge is consumers are more price-sensitive than they typically are or typically have been, I should say, and are looking for lower-priced alternatives. This is what makes us so excited about R2. The R2 price point starting at $45,000.

If you look at even just in Q1, the average across both R1 and our commercial van, the average selling price was $88,500. That is with the vans included. We have a very high ASP, which is a great thing on our flagship product. By virtue of that, the size of that market is just more limited. I think in this environment, with the level of uncertainty, it becomes even more constrained in this backdrop. If we can have a fraction of the success we have with R1 in the much bigger market that R2 is operating in, much, much bigger market that R2 is operating in, we will be very happy.

Mark Delaney (Managing Director and Senior Equity Research Analyst)

That's helpful. Hopefully, the new advertising campaign also is a step forward. I did like the lemonade advertising campaign that you guys just launched. My other question was on regulatory credits, which can be very strong in the first quarter. I wanted to better understand if the company still expects about $300 million of regulatory credit revenue for 2025, or does the strength that you saw in the first quarter imply some upside to the outlook there? Thanks.

Claire McDonough (CFO)

Thanks, Mark. We still expect to be roughly in and around the $300 million area for the year as a whole as we look at the broader outlook for rent credits.

Operator (participant)

Our next question will come from Philippe Houchois with Jefferies. Please unmute your line and ask your question.

Philippe Houchois (Managing Director)

Yes, good afternoon. It's Philippe Houchois at Jefferies. I can follow up on the question from Joe on inventory. I'm surprised the inventory didn't go up more than the $250 million considering the overproduction with Claire you just said about shifting some of the depreciation into inventory and also the fact you hold more batteries. Did you do any action to actually free up some capital from that inventory?

Claire McDonough (CFO)

Sure. The dynamics that we saw in the quarter was both a reduction in our raw materials by about $220 million. We did have a significant increase of roughly $563 million in our finished goods inventory as a whole. Part of that was, and maybe I'll have Javier jump in as well, but we're very focused on driving towards more lean manufacturing principles from a logistics perspective. Javier, if you want to comment on some of the initiatives at hand.

Javier Varela (COO)

Yeah, indeed. In the last months, we have been focusing in accelerating lean manufacturing implementation in our operations, focusing on the flow, on compacting our processes, improving the workstations, empowering the front line to continuously improve the process, and particularly in our just-in-time operations. We are heavily reducing our inventory in incoming material that is on hand, not only in the plant, but as well the flows that are coming from the suppliers to our plant in the cross docks or whatever is on the trains or in the trucks. That's a great contributor to this cash-free from, I mean, reduction of the working capital.

Philippe Houchois (Managing Director)

Great. That's good to hear. Thank you. Maybe a follow-up on your autonomy platform. Is that part of the technology you would potentially share with Volkswagen, and particularly on using the Volkswagen Volume Market Share to acquire more data on the sensors? Or is that separate?

RJ Scaringe (Founder and CEO)

Thanks, Philippe. Yeah, the autonomy platform is entirely separate from our joint venture. The joint venture captures our operating system and software platforms across our zonal ECUs and then also includes the zonal ECUs themselves, but does not include our in-house compute platform or compute stack or the perception stack that we have developed. Of course, not the foundation model and the work that is going into the software to drive our self-driving platform.

Philippe Houchois (Managing Director)

Great. Thank you very much.

Operator (participant)

Our next question will come from Edison Yu with Deutsche Bank. Please unmute your line and ask your question.

Edison Yu (Analyst)

Hi. Thank you for taking our questions. I wanted just to confirm one thing on the comments about tariffs as it relates to R2. Is the current thinking that if the existing tariff regime stays, that we would not be impacted in the timing of SOP and also the starting price that we're aiming for?

RJ Scaringe (Founder and CEO)

This is, as you've heard us say a few times here, this is just a dynamic situation. I want to make sure we reflect that. We're not planning changes in our $45,000 starting price. This is important for us. There's a number of variables that we are actively working on. Javier talked about it with regards to an incredible focus on our supply chain, our suppliers themselves, their production locations. We have warning, if you will, or timing to we have the time to respond to the new policy framework that we're now operating within. It's very clear the presence and intentions, and we're very supportive of that in terms of driving more manufacturing to the United States. We're, of course, doing that already with our Normal plant and with the plant that we're also building in Georgia.

We're also driving that into our supply chain as heavily and aggressively as we can.

Edison Yu (Analyst)

Understood. Understood. Follow-up on autonomy. I'm wondering if you could share your latest thoughts on the economics of that. I guess there's two elements. There's the cost of getting there, and there's the sort of monetization. If there's any kind of more updated numbers you could share, perhaps on if the pricing this could ultimately be, would it be similar to FSD? Would there be subscription offering, something along those lines? Thank you.

RJ Scaringe (Founder and CEO)

I think this is a part of a business that's going to evolve a lot over the next five years. The way we think about it is, first and foremost, increasingly customers are going to want to see higher levels of autonomy. I said this earlier in my opening statements just around the importance of going from a hands-on, eyes-on approach to hands-off and then very soon hands-off, eyes-off, which is where you get your time back. You can use the time to be on your phone, reading a book, doing something else with the hands-off, eyes-off, and then ultimately having that work across any type of road, so urban, highway. We see this as really critical from a customer experience point of view.

The way these systems are developed now is so different than what the world looked like just a few years ago with transformer-based encoders and using an end-to-end training approach where we're building truly an AI-centric approach. Think of it like a foundation model in the LLM world where there's a large parameter model that we understand how the vehicle operates within the physical world, and the distilled version of that runs in vehicle on our inference platform. We are very bullish on the technology. We think the changes that have happened in terms of use of transformers have completely shifted how we look at this just in the last couple of years. It requires vertical control of the sensor set, meaning it's impossible to design a system that has multiple third parties that are providing sensors or creating any layers of abstraction amongst those sensors.

With all that said, we really believe this is going to be a key value driver for customers. The question is, how does that value get harvested? Does it show up as an incremental paid feature? Does it show up in vehicle pricing? Does it show up in market share? I think it's yet to be seen. We certainly have lots of hypotheses internally. Ultimately, it's going to show up as value to the business in some way. It's interesting watching the difference in the ecosystem here in the West, or in particular in the United States versus the ecosystem that exists in, let's say, China. What we're increasingly seeing happen in China is that the self-driving features and capabilities are being used to drive market share. They're being used to drive sales.

That is a path it could go, but it really depends on the competitive landscape. If there's only one or two brands or one or two companies that have that type of capability, we may see it show up more as a paid feature.

Edison Yu (Analyst)

Thank you.

Operator (participant)

Our next question will come from George Gianarikas with Canaccord Genuity. Please unmute your line and ask your question.

George Gianarikas (Sustainability Research Analyst)

Hi. Good afternoon. Thank you for taking my questions. There's a debate around how to increase EV adoption. Obviously, you're bringing the R2 and R3 to market to help lower price points to that end. Some companies in China are introducing faster charging batteries with likely faster battery degradation as well. We obviously need more charging network density. Can you sort of talk to us about any technologies you're trying to bring to market to make that happen, maybe around batteries to improve EV penetration in the U.S. and the West? Thanks.

RJ Scaringe (Founder and CEO)

Yeah. Thanks for the question, George. I love this question. I think it's an important one. I think there's a few big elements here, and one could debate what's the most important or the biggest. In our view, in the United States in particular, there's a pretty extreme lack of great choices. When I say an extreme lack of great choices, in particular, price points that start below $50,000. In order for us to see large-scale adoption of electrification, we need to have enough selection in terms of brand, the design or the look of the vehicle, the form factor, the segment. If you think about it in terms of consumers coming out of ICE vehicles and finding their way into EVs, there's hundreds of choices you have in the ICE world for products under $50,000.

There is a very, very small number of compelling choices of EVs under $50,000. There is an even smaller subset of different form factors. As a result of that lack of choice, we have seen significant market share consolidation with Tesla. They have great products with the Model 3 and Model Y in that price category. The market needs more choices. This is why we are so excited about R2. We really believe this is something that will give consumers an alternative and a choice that is really interesting. It is going to help pull more people, we believe, out of internal combustion into electrification. I spent a lot of time in the product. I was just in Arizona driving it. It is absolutely incredible.

The dynamics, the function, of course, for us, knowing all the work that we put into optimizing the way it's manufactured from a cost structure point of view, I just couldn't be more excited about what's coming with R2. There are other elements here. I think building out charging infrastructure is an important one for us. Within Rivian, what we've done is we have a relationship with Tesla that allows our customers to use the Tesla network. We're also building out our own network. In fact, we referenced it in our shareholder letter. Our network is, there's really only two networks that have the level of uptime that we have. Tesla's network, which is outstanding, and our network, which is, we have over 700 chargers. The uptime is higher than 98%.

Consumer Reports actually called out specifically our network as being incredibly performant and very easy to use, which was great to see. We are continuing to scale that network. It is an open network, so it is also revenue-generating, which helps build the acceleration or the flywheel, if you will, of that network being expanded. I think the last piece, which actually ties to the question that came up before, is not for technical reasons, but in some ways, by coincidence, autonomy and electrification are often interlinked. I do think the growth of autonomous features and what we are going to see as we look out into 2027 and 2028 will help draw more customers into electric vehicles. Certainly, we feel that way about our own products. We are quite bullish on what that will represent in terms of driving consumer behavior.

George Gianarikas (Sustainability Research Analyst)

Thanks. Maybe as a follow-up on the Volkswagen JV, can you tell us if any other OEMs have possibly approached you to collaborate? Thank you.

RJ Scaringe (Founder and CEO)

Yeah. I mean, Claire and I both referenced it. Our second consecutive quarter profitability with $206 million of gross profit for Q1 does unlock an additional $1 billion in financing from Volkswagen Group. That is outstanding. The relationship there, it continues to progress really well. Our teams are working very closely together. Even to the previous question, I think what has us so excited about this from a mission point of view is seeing our technology, our software stack, our zonal ECU architecture, seeing that deployed across a wide array of different vehicles and brands is ultimately going to give customers choice and is going to help drive more adoption of electric vehicles. The scale of it, with Volkswagen Group being the second largest vehicle manufacturer in the world, is really enormous.

At this point, we're very focused on executing a lot of programs across the Volkswagen Group. We've talked about this before. Certainly, we're open to and plan to engage with other OEMs. At this point, we don't have any additional guidance to say other than that we're focused on execution of all these exciting programs within Volkswagen Group.

George Gianarikas (Sustainability Research Analyst)

Thanks.

Operator (participant)

Our next question will come from Ben Kallo with Baird. Please unmute your line and ask your question.

Ben Kallo (Managing Director and Senior Equity Research Analyst)

Hey, guys. Have you seen any uptick, just in demand, from everything going on with Tesla? My second question is about Slate Auto and what that means to you guys. Thank you.

RJ Scaringe (Founder and CEO)

Yeah. As we talk about consumer choice, Tesla's got an incredible set of products with the Model 3, Model Y. The vast majority of their volume is there. The price point's quite a bit different than our flagship product. Our flagship product, ASP, is roughly double Tesla's Model 3, Model Y. While you certainly do have some cross-shop, really, R2 will be much more of a similar product in terms of pricing, very different in terms of execution. Again, jumping off the previous points I made around the need for product selection and diversity of choices, the Slate product is a very different consumer than a Rivian product. I'll always say this. I think it's really important that we have lots of choices.

Those choices are not all on top of each other in terms of price positioning, customer demographic, vehicle form factors, vehicle positioning. I'm always pleased and encouraged to see new product concepts, new product ideas emerge. This is one that's certainly not at all playing in the same spaces where Rivian operates today.

Operator (participant)

Our next question will come from Ronald Jewsikow from Guggenheim Securities. Please unmute your line and ask your question.

Ronald Jewsikow (Director and Equity Research Analyst)

Yeah. RJ, Claire, good afternoon. Thanks for taking my questions. Maybe starting on the delivery guidance changes, any detail or high-level commentary on if the reduction is primarily from vans or consumer vehicles? Is there some supply risk baked into the reduction? I know you talked about rare earth restrictions, Claire. Is this solely what you're seeing in kind of the current demand backdrop?

RJ Scaringe (Founder and CEO)

Yeah. We talked about just the level of uncertainty around how consumers are looking at the market and what that means for us in terms of overall demand backdrop. I mentioned just the price sensitivity with our current product set on the consumer side being our flagship products with high ASP. We do think R2 unlocks a huge amount of demand for us and will dramatically grow the amount of volume we're producing and because of that, improve our fixed costs across all of our Normal facility. As we then look at what does it mean for 2025, the guidance we provided reflects our adjusted view of how consumers are going to behave over the remainder of this year.

It also reflects what we expect on the commercial side, inclusive of our partnership with Amazon, a very close partner, and working very much hand in hand to continue growing their fleet. As we look at this across our supply base, we're absolutely considering any impacts that the tariff environment will have on our suppliers from a cost point of view. We're also looking at it from a supplier health point of view and making sure that we do all the work that we can to avoid any supply interruptions. Having lived through a number of these already, we're acutely aware of the challenges of being short one part. A vehicle has thousands of parts, but you can't leave a couple of parts out.

Our supply chain team has been forged through the supply chain crisis of 2022 and 2023 and has actually impressively jumped into action with what is happening from an overall trade point of view today. We feel a lot of that training that happened in 2022, 2023 is proving to be quite fruitful right now.

Ronald Jewsikow (Director and Equity Research Analyst)

Yeah. I appreciate the color there. It's exciting to see some of your R2 content start to trickle out on social media. It seems like we're getting to the point where you're doing pilot production, and it's starting to feel a bit more real. I guess maybe is there an update on retooling and production downtime? Just for clarification, have you sourced the capital equipment you need for the R2 already, or is that what some of the capital equipment inflation is for this year, just as we think about risks for the R2 launch?

RJ Scaringe (Founder and CEO)

Yeah. I mean, I am starting to trickle out some content. If it's not obvious, we are so excited about it. My excitement sort of bleeds through into some of the pictures we're putting out there. Yeah, when we look at the R2 program, this is well underway. We are producing it at pilot scale. We call them validation builds today. In fact, there's a picture of our pilot line in the shareholder letter. Those vehicles are critical for not just validating the vehicle itself from an engineering and design point of view, but also validating our suppliers and making sure that their processes are robust. For me, it's really a meaningful step forward.

It's hard to fully represent this here in words, but just the difference of where the R2 program is today relative to its start of sales in the first half of next year compared to where R1 was at the same point in its launch cadence, the level of robustness, the rigor that we have from a testing point of view, the rigor and robustness that we have in terms of supplier bring-up and plant bring-up is just, I mean, it's just incredible how much learning has been baked into this program. A big part of that is, of course, the team that's grown. That's at all levels. That's our leadership team. That's the plant for leadership team. It's also sitting next to me. That's our COO with Javier.

I would like to invite Javier just to talk a little bit about some of the work that we're doing in terms of your question on capital equipment and the build-out of the R2 plant.

Javier Varela (COO)

Yeah. I was with you last week driving the car in Arizona, the prototype. And 35 years of experience launching cars in the automotive industry. I can tell you that the dynamic status that we have in this car is amazing. It was awesome and very fun to drive. We had a really great time. When it comes to the prototype builds, they are underway. The design validation build is how we call it. For the equipment, the building, we are increasing the footprint in Normal. The building that will host body shop and assembly is finished. Now we start implementing the processes inside. All the equipment is sourced. The test in the equipment maker is ongoing. For shipping it, we typically test and we calibrate the equipment there.

Related to the downtime you were referring, we'll have that downtime in the second half of the year. That is to integrate in the paint shop that we currently in Normal delivers R1 and the vans to integrate the R2 in there. This requires a heavy work in an existing flow, requires a downtime. It is underway. There is still work during the weekends to prepare some of the steel work in that paint shop. The big transformation will come in the second half in that downtime that will be executed as planned. Overall, great progress and as excited as everyone to get the car out in the roads. Great team behind. I really appreciate it. I would take the opportunity to thank all the teams for the great efforts and capabilities put in place.

Ronald Jewsikow (Director and Equity Research Analyst)

Yeah. We're excited for it as well. I appreciate all the color. Thanks.

RJ Scaringe (Founder and CEO)

Thank you.

Operator (participant)

Our last question will come from Itay Michaeli with TD Cowen. Please unmute your line and ask your question.

Itay Michaeli (Equity Research Analyst)

Great. Thank you. Good afternoon, everybody. Just had two clarifications back to the autonomy platform. First, are you still on track to launch eyes-off in controlled conditions next year? Maybe talk about kind of what you need to see to do that. Secondly, with R2, should we think about that as having a standard autonomy hardware system, or could we see potentially different iterations on that platform depending on the trim level? Thank you.

RJ Scaringe (Founder and CEO)

Yeah. I referenced it a couple of times, but we just put in place a hands-off eyes-on feature, meaning your eyes, you still have to be looking at the road, but your hands can come off the wheel for highway application. That is going to broaden to more urban roads as well. Importantly, moving to hands-off eyes-off, so what you might call a true level three, is something we are very focused on. Delivering that in specific environments, starting with highways next year, is really key for us. Now, on the R2 side of things, we do have a slightly enhanced perception stack that is going on R2 relative to R1. It is 65 megapixels of cameras. We have made further improvements in our camera set relative to R1.

Now, that's noteworthy because the R1 camera set today is the highest performing camera set that's on any vehicle sold in North America. Now, more megapixels than any other vehicle. The dynamic range on those cameras is just incredible. When I say dynamic range, I mean the performance in very low light conditions or in very bright light conditions. I referenced this when I was responding to Adam's question earlier, but that breadth of performance of the cameras and then feeding that entirely owned set of signals into our platform allows us to really accelerate the training with this really high-quality data, particularly when it's combined with the radar set that's on the vehicle. We have four corner radars that are traditional, pretty straightforward radars, but the front center radar is an imaging radar. It gives us X, Y, and Z.

That provides a really nice additional modality for which we're training our system. We think about these end-to-end models being trained. The more robust the data set, the faster we see progress. In fact, it's been helpful to see that same phenomenon play out in the LLM space where the quality of data has become increasingly important. How the data is selected, partitioned, and fed into the model becomes really key. With all that said, we don't envision having an R2 that doesn't have a very robust autonomy platform built into it because we think it's such a critical part of the customer experience. As we see what's coming with the feature set, we don't envision our products not having that level of capability.

Itay Michaeli (Equity Research Analyst)

That's all very helpful. Thank you.

Operator (participant)

This concludes the question and answer session of the call. I would now like to turn the call back to RJ Scaringe for closing remarks.

RJ Scaringe (Founder and CEO)

Thanks, everyone, for joining us today. This is a really exciting quarter for us, being the second quarter of positive gross margin and our highest gross margin to date with $206 million. We're excited to continue driving cost efficiency throughout the business and even more excited to see the effects that R2 will have on the business in terms of increased scale, sharing more of the fixed costs of our Normal facility, and therefore driving even higher levels of gross margin profitability and ultimately profitability for us as a business. With that said, we're also incredibly focused on driving forward in terms of our autonomy platform. This is something that it took years of time to implement in our Gen 2 platform in terms of the hardware topology. We're now just at the beginnings of seeing this non-linear growth rate in terms of capability and features.

We will continue to talk more about this. As I said earlier, we are going to be having an autonomy and AI day in the fall. In that, we will provide a lot more visibility and details into our technology stack, both the hardware side of things as well as the software, and provide demonstrations of what some of this roadmap looks like. Hopefully, everyone can see why we are so excited about this internal effort. With that, thanks again for the call. I look forward to speaking with everybody next quarter.