📊 2022 Q4 and Full-Year Earnings Results & Shareholder Letter: 50K production goal for 2023, ~400 Mile Range for Max Pack

[Zoidz]

If it’s chips that’s making a difference between 50k and 60k production, let’s say, it seems worth it to pay more for those marginal chips to keep the company’s stock price and momentum up.

Even if Rivian did offer to pay more, it's unlikely they would get them. The chip foundrries have production contracts that they are behind on. GM, Ford, BMW, Toyota, Stellantis, etc. have alot more clout and money than Rivian.

Example: The big auto companies have backorders for a total of 4 million XYZ chips and have been customers with long term negotiated contracts for 20 years - RIvian has a purchase order for 25,000 and has been a customer for 3 years. Where are you going to prioritize production? What if the long term contracts include priority clauses? That's how this works. It's not a spot market for who ever bids the most today.

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[DuoRivians]

Even if Rivian did offer to pay more, it's unlikely they would get them. The chip foundrries have production contracts that they are behind on. GM, Ford, BMW, Toyota, Stellantis, etc. have alot more clout and money than Rivian.

Example: The big auto companies have backorders for a total of 4 million XYZ chips and have been customers with long term negotiated contracts for 20 years - RIvian has a purchase order for 25,000 and has been a customer for 3 years. Where are you going to prioritize production? What if the long term contracts include priority clauses? That's how this works. It's not a spot market for who ever bids the most today.

By this logic, Rivian will never be able to produce sufficient cars to escape velocity then, which I think is incorrect. For example, for 2023, why not be stuck at 25k vehicles (not 50k) because the chip suppliers won’t supply more than 25k like last year and they gave all their supply to other oems already.

 

[Zoidz]

By this logic, Rivian will never be able to produce sufficient cars to escape velocity then, which I think is incorrect. For example, for 2023, why not be stuck at 25k vehicles (not 50k) because the chip suppliers won’t supply more than 25k like last year and they gave all their supply to other oems already.

Below is an example contract for chip manufacturing which includes a penalty clause if the foundry does not meet contractual requirements. This would be the type of contract that GM, etc. have. Rivian is low man on the totem pole.

Look at the penalty clause. If the foundry falls behind, they must pay damages to the customer. A foundry could literally pay all of Rivian's damages with the profits from just a few weeks of large contract manufacturing for GM, etc.

New foundries are being built and exsiting foundries are working 24x7x365 at max capacity to catch up. That's how Rivian will get additional product, and that's why they are not ramping to 60k 75k as others would like to see. They have been told by their suppliers what to expect for 2023 and have planned accordingly.

Most people don't have a working knowledge of manufacturing supply chain and can't comprehend the contractual priorities and gazillion challenges that RIvian is facing. I know a little bit about it - enough to know that Rivian is actually doing quite well, all things considered.

8.2 Delays. Time is of the essence under this Agreement and all deliveries by SMIC to Spansion must conform to the delivery requirements set forth in the applicable Purchase Order. Any deviation from such delivery requirements must be agreed to in writing by Spansion. SMIC must, at all times, maintain an adequate reserve inventory of Contract Wafers at SMIC’s facility such that SMIC can remain in compliance with such delivery requirements even if an unexpected event jeopardizes timely delivery of the Contract Wafers to Spansion. Except as provided in Section 8.4 (Force Majeure) below or delivery schedule changed by mutual agreement, failure to timely deliver Contract Wafers as required shall constitute a material breach of this Agreement, Spansion may terminate the Agreement in whole or in part and seek remedy pursuant to section 18.2 (Termination), and Spansion will have the right to immediately procure similar substitute Products from an alternate supplier.

8.3 Delivery Capability. For each type of Contract Wafer purchased by Spansion hereunder, SMIC must maintain sufficient Contract Wafer production and distribution capabilities that will enable SMIC to deliver (i) [*******] of Spansion’s forecasted demand throughout the Term of this Agreement, or (ii) if no forecast has been provided by Spansion, [*******] of Spansion’s Product purchases during the previous Spansion fiscal quarter.

10.2 Capacity Commitment.

(a) Within ten (10) days after receipt of Spansion’s four quarter forecast, SMIC shall provide Spansion with a written plan detailing SMIC’s manufacturing capacity commitments for the forecast period (the “Capacity Plan”), provided that in any calendar quarter, SMIC shall provide [*******] of the Firmly Forecast Orders for such quarter and shall use commercially reasonable efforts to provide additional capacity beyond [*******], as requested and as available. Spansion will order an amount equivalent to [*******] of the forecast for such quarter or the Capacity Plan, whichever is less. If Spansion believes Spansion requires more capacity than provided in the Capacity Plan, the Parties shall cooperate in good faith to resolve Spansion’s capacity requirements.

0.3 Capacity Shortfall.

(a) Quarterly Commitment. Notwithstanding Section 10.3(b) (Monthly Commitment), below, if SMIC’s Capacity Plan is less than [*******], SMIC shall pay Spansion [*******] of the then current Contract Wafer price set forth in the Product Supplement for the amount by which the number of Contract Wafers supplied by SMIC is less than those specified in the Firmly Forecast Order. Furthermore, If SMIC supplies less than [*******] of the Contract Wafers listed on Spansion’s Purchase Order for the Firmly Forecast Orders, SMIC shall pay Spansion [*******] of the then current Contract Wafer price set forth in the Product Supplement for the amount by which the number of Contract Wafers supplied by SMIC is less than those specified in the Purchase Order.

 

[DuoRivians]

Below is an example contract for chip manufacturing which includes a penalty clause if the foundry does not meet contractual requirements. This would be the type of contract that GM, etc. have. Rivian is low man on the totem pole.

Look at the penalty clause. If the foundry falls behind, they must pay damages to the customer. A foundry could literally pay all of Rivian's damages with the profits from just a few weeks of large contract manufacturing for GM, etc.

New foundries are being built and exsiting foundries are working 24x7x365 at max capacity to catch up. That's how Rivian will get additional product, and that's why they are not ramping to 60k 75k as others would like to see. They have been told by their suppliers what to expect for 2023 and have planned accordingly.

Most people don't have a working knowledge of manufacturing supply chain and can't comprehend the contractual priorities and gazillion challenges that RIvian is facing. I know a little bit about it - enough to know that Rivian is actually doing quite well, all things considered.

8.2 Delays. Time is of the essence under this Agreement and all deliveries by SMIC to Spansion must conform to the delivery requirements set forth in the applicable Purchase Order. Any deviation from such delivery requirements must be agreed to in writing by Spansion. SMIC must, at all times, maintain an adequate reserve inventory of Contract Wafers at SMIC’s facility such that SMIC can remain in compliance with such delivery requirements even if an unexpected event jeopardizes timely delivery of the Contract Wafers to Spansion. Except as provided in Section 8.4 (Force Majeure) below or delivery schedule changed by mutual agreement, failure to timely deliver Contract Wafers as required shall constitute a material breach of this Agreement, Spansion may terminate the Agreement in whole or in part and seek remedy pursuant to section 18.2 (Termination), and Spansion will have the right to immediately procure similar substitute Products from an alternate supplier.

8.3 Delivery Capability. For each type of Contract Wafer purchased by Spansion hereunder, SMIC must maintain sufficient Contract Wafer production and distribution capabilities that will enable SMIC to deliver (i) [*******] of Spansion’s forecasted demand throughout the Term of this Agreement, or (ii) if no forecast has been provided by Spansion, [*******] of Spansion’s Product purchases during the previous Spansion fiscal quarter.

10.2 Capacity Commitment.

(a) Within ten (10) days after receipt of Spansion’s four quarter forecast, SMIC shall provide Spansion with a written plan detailing SMIC’s manufacturing capacity commitments for the forecast period (the “Capacity Plan”), provided that in any calendar quarter, SMIC shall provide [*******] of the Firmly Forecast Orders for such quarter and shall use commercially reasonable efforts to provide additional capacity beyond [*******], as requested and as available. Spansion will order an amount equivalent to [*******] of the forecast for such quarter or the Capacity Plan, whichever is less. If Spansion believes Spansion requires more capacity than provided in the Capacity Plan, the Parties shall cooperate in good faith to resolve Spansion’s capacity requirements.

0.3 Capacity Shortfall.

(a) Quarterly Commitment. Notwithstanding Section 10.3(b) (Monthly Commitment), below, if SMIC’s Capacity Plan is less than [*******], SMIC shall pay Spansion [*******] of the then current Contract Wafer price set forth in the Product Supplement for the amount by which the number of Contract Wafers supplied by SMIC is less than those specified in the Firmly Forecast Order. Furthermore, If SMIC supplies less than [*******] of the Contract Wafers listed on Spansion’s Purchase Order for the Firmly Forecast Orders, SMIC shall pay Spansion [*******] of the then current Contract Wafer price set forth in the Product Supplement for the amount by which the number of Contract Wafers supplied by SMIC is less than those specified in the Purchase Order.

Yes, I get that supply is limited. But why do chip manufacturers not just keep Rivian at 25k indefinitely if demand from other oems is still insatiable and “more important”?

 

[Zoidz]

Yes, I get that supply is limited. But why do chip manufacturers not just keep Rivian at 25k indefinitely if demand from other oems is still insatiable and “more important”?

Two reasons:
1) As they catch up on quotas for the big companies, it introduces slack in the 2023 production schedule and they can increase Rivian's production above 25k.
2) Foundries started build out of new capacity a year or two ago when this problem was evident. Some of that will come online in 2023, adding to capacity.

Below it mentions 1.2 million wafers. Each wafer can contain 50 to 250 or more individual chips. That's a lot of new capcity coming online.

SEMI: 200mm semiconductor fab capacity set to surge 21% to mitigate supply-demand imbalance
12 April 2022
Semiconductor manufacturers worldwide are on track to boost 200mm fab capacity by 1.2 million wafers, or 21%, from the start of 2020 to the end of 2024 to hit a record high of 6.9 million wafers per month, according to SEMI’s 200mm Fab Outlook Report. After climbing to $5.3 billion last year, 200mm fab equipment spending is expected to be $4.9 billion in 2022 as 200mm fab utilization remains at high levels and the global semiconductor industry works to overcome the chip shortage.

200mm installed semiconductor capacity and fab count, 2013 to 2024. Fab count is net of wafer-size conversions. Source: SEMI​

Wafer manufacturers will add 25 new 200mm lines over the five-year period to help meet growing demand for applications such as 5G, automotive and Internet of Things (IoT) devices that rely on devices like analog, power management and display driver integrated circuits (ICs), MOSFETs, microcontroller units (MCUs) and sensors.

—Ajit Manocha, SEMI president and CEO​

The SEMI 200mm Fab Outlook Report, covering the 12 years from 2013 to 2024, also reveals that foundries will account for more than 50% of fab capacity worldwide this year, followed by analog at 19% and discrete/power at 12%. Regionally, China will lead the world in 200mm capacity with 21% share in 2022, followed by Japan with 16% and Taiwan and Europe/Mideast at 15% each.
Equipment investments are projected to remain above $3 billion in 2023, with the foundry sector accounting for 54%, followed by discrete/power at 20% and analog at 19%.
The SEMI 200mm Fab Outlook Report lists more than 330 fabs and lines and includes 64 changes across 47 fabs since its most recent update in September 2021.
SEMI connects more than 2,500 member companies and 1.3 million professionals worldwide to advance the technology and business of electronics design and manufacturing.

Posted on 12 April 2022 in Forecasts, Market Background, Microprocessors and controls | Permalink | Comments (0)

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[DuoRivians]

Two reasons:
1) As they catch up on quotas for the big companies, it introduces slack in the 2023 production schedule and they can increase Rivian's production above 25k.
2) Foundries started build out of new capacity a year or two ago when this problem was evident. Some of that will come online in 2023, adding to capacity.

So, the excess capacity from foundries just happens to coincide at 25k, twice what Rivian promised to produce in 2022…

That coincidence seems improbable. Seems more probable that other bottlenecks exist in the manufacturing process, or Rivian is trying to sandbag their guidance

 

[MountainBikeDude]

Its more about what they didn’t say:

In addition, Rivian for the first time did not provide an update on its vehicle reservations, raising a “red flag,” Nelson said, especially as other EV makers such as Lucid Group Inc. reported declining reservation counts.

In the call, Scaringe sidestepped a question about Rivian’s order book, saying that despite rising interest rates and other demand-crimping factors, “the demand backlog we have is very robust.”

Last quarter they stated they would no longer be reporting on preorder numbers. I understand why in two ways.

First, a preorder isn't a sale, only a potential sale, so they chose to focus metrics on orders fulfilled.

Second, it makes sense that with a declining economy people might give up their reservations, and not reporting the number does less damage than one that's down in a subsequent quarter. On the other hand, while there are other vehicles on offer from other manufacturers, the majority aren't in production until 2024 and aren't as compelling as Rivians offerings. So the amount of cancelled reservations I feel is quite low based on sentiment here and in other forums. What is more likely, is a reservation may go unfulfilled because that order holder has moved on but kept the reservation on the backburner as a "just in case" We also still see people every day posting their excitement at just placing their new preorder. The brand is obviously still attractive and people are still willing to get in line.

Bonus points, people can be dumb. You show them a 100,000 preorder back log and 10,000 vehicles produced one quarter, and the next a 96,000 preorder backlog and 18,000 vehicles produced, people would pull out the pitchforks and start claiming rivian lost 4,000 preorders one quarter to the next.

Reality 110,000 total in one, 114,000 in the other. (just an example not real numbers btw).

Another thing to consider is some customers aren't willing to get in line for a product a year out. If Rivian gets production rate to a point where delivery is within a few weeks of an order being placed, they attract another large group of customers who now see a Rivian in their driveway tomorrow, not next year, allowing them to make current vehicle replacement more fluid and not "I've got a preorder for a Rivian, what should I buy in the meantime until it arrives"

 

[Zoidz]

So, the excess capacity from foundries just happens to coincide at 25k, twice what Rivian promised to produce in 2022…

That coincidence seems improbable. Seems more probable is that other bottlenecks exist in the manufacturing process, or Rivian is trying to sandbag their guidance

It's not a coincidence at all. Read the November 2021 S1 which said back then that production for 2023 was planned at 50k. That implies that Rivian contracted for materials for 50k vehicles and they are getting what they contracted.

We are discussing why they cannot get to 60k or 75k this years.

 

[MountainBikeDude]

They are getting their butts handed to them for every quad-motor vehicle they are selling at 2018 prices. THAT is why they are slowing production -- in hopes of getting a cheaper to produce model available for people sooner before they run themselves into the ground.

I understand how unpopular it was, but to price lock themselves back to 2018 was a titanic financial mistake that is going to cause ongoing pain for some time.

I agree it's costing them quite a bit, but so was/would have been the blow back from mass cancellations had they not walked back the price increase. I think what they did was take one on the chin to retain loyalty of the early adopters they desperately needed.

Short term loss for longer term gain.

Had they stuck to the price increase across the board, I think they would be in a position similar to Lucid, better profit margins per vehicle, but at an even lower volume would have been a disaster.

I still believe they should have done a sliding scale price increase from late 2018 to March '22 rather than a blanket "you're this price on this side of the line, and you're the higher price on that side". It would have been a fair compromise in my opinion, giving them a bit more financial headroom, and early adopters a bit of a deal.

 

[SANZC02]

Just small correction, the prices are actually late 2020 prices. I had no idea what the price was when I placed my pre-order. Prices came out in November 2020 when the configurator opened.

 

[pc500]

*skipping the thread to be here*

I can't be the only one who is pissed off at the "Max Pack" coming in the R1S but only if I order a crappy dual motor instead of the quad. This is frustrating at best, annoying and disappointing for sure.

Of course by the time they actually get around to this, it won't matter because they'll use a AA battery that go 400 miles due to newer tech.

I wonder what technology improvements they are planning. The range reference could be a modest increase from simple improvements in the electronics they mentioned and potentially new SiC power chips. Maybe also a move to giga castings that was casually mentioned? But these seem like something that would be implemented across all vehicles so what are they planning from an ASP increase? Finally releasing the camp kitchen & tent?

“In the first half of 2024, we intend to take production of the plant down for a few weeks to implement new technologies into our vehicles…. While, the incorporation of these new technologies temporarily impacts production they are expected to provide improved vehicle performance in range and deliver cost reductions that are critically important to our path to profitability”

Then later

“But we do see the introduction of some of the new technologies and some of the new features to allow us to actually grow ASP. As Claire said with not only the new prices coming on for post March 1 orders, but also to reflect some of the new technologies are going to be in the vehicle.”

Was the rest of that a quote from the call? What I really want to see and I'm struggling with on this product is more inverter output. I know previously they announced development on their bidirectional charging system and I'm hoping this is related to incorporating it. Well I'm not sure how that gets them more range it might be slightly more efficienr mpg wise.

 

[SDH]

Folks, Rivian are not going to go bust and disappear. I sense a lot of panic on this thread.

The reason they are not going to disappear and leave you stranded is because even if they totally runout of cash, they have too good a product, too many smart people, ideas & facilities for another car company or investor not to buy them (even if on the cheap).

This company is NOT Enron. How many times has Aston Martin gone bust?

 

[DuoRivians]

Rivian stock has lost all momentum. It's important in that it's a key motivator for employees. I think RJ and executive team should have done a much better job managing expectations. IMO, it comes down to the 50K production number. They should have guided higher and then worked like hell to get it, which is more feasible if employees see their vested interest (i.e. stock price) go up.

 

[kurtlikevonnegut]

I think there is a secondary benefit to reduced production in 2023 which may or may not be intended. It is possible that demand is waning somewhat due to the cost of the vehicle with significant concerns about a recession and consumers reducing discretionary spending. I wouldn't be surprised if Rivian decided that 2023 should be a "belt tightening" year where they focus primarily on fulfilling existing orders and increasing production with the expectation that demand will continue to wane as long as the Sword of Damocles continues to hang over the economy.

The upshot there is that taking advantage of reduced production for 2023 to better prepare for increased demand in 2024 and beyond.

Having the EDV order and sharing a significant % of parts between R1 and EDV is a huge benefit for Rivian as they have the ability to reallocate shared parts to boost EDV production if the R1 line encounters reduced demand. I am confident that the EDV alone has the ability to carry them through to R2 production.

 

[pc500]

Yeah agree there was just a way to do it without locking all of those orders in at 2018 prices. Sure, they would have lost some orders and pissed plenty of people off, but the reality is now they are selling a bunch of vehicles to people who only have an interest in reselling it. That is going to 100% weigh on and eat into their new order book for longer than I think they considered at the time.

The reselling game is over. After taxes it's a wash now. While I think some are reselling, most are keeping for at least a year or two.

I think the other reality is $14k per unit is just a rounding error in their finances. Sure they toss up a few million, but they're focus is on ramp and expansion.

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