$Rivian Automotive(RIVN.US) Financial report quick interpretation: Overall, looking at the performance in the fourth quarter, the results exceeded expectations across the board. More importantly, as the company has repeatedly emphasized, the gross margin on the financial statements successfully turned positive, reaching 9.8%, which is 2.4% higher than the market consensus expectation.

Due to the relatively large adjustments in Rivian's financial statements this time, the market is most concerned about Rivian's core automotive business performance. Dolphin Research has separated this performance to analyze the automotive business independently.

From the automotive business perspective, the gross margin for the automotive business on the financial statements turned positive this quarter (7.2%), but in reality, it was due to a large amount of regulatory credit income recognized in 2024 Q4 (consistent with management's guidance from the previous quarter). Excluding this regulatory credit, the gross margin for the automotive business is -15.5%. Although it has not turned positive yet, it has improved by 35 percentage points compared to the previous quarter, which is a significant improvement.

However, the gross margin for the automotive business on the financial statements is also affected by inventory and contract impairment reversals, as well as one-time cost factors. Since the amount that can be reversed for inventory and contract impairments will be very small by 2025, and one-time costs (mainly related to the second-generation R1 updates) are unlikely to recur in 2025, Dolphin Research has excluded these two impacts to observe the real gross margin of the automotive business. From the real gross margin of the automotive business this quarter (also excluding regulatory credits), it shows a decent improvement, with a real automotive business gross margin of -21.1%, which is a 23 percentage point improvement compared to the previous quarter.

The core reasons for the quarter-on-quarter improvement are:

① The most significant factor: the revenue per vehicle in Q4 was $86,000, an increase of $9,400 compared to the previous quarter, significantly exceeding the market's expectation of flat revenue per vehicle. The main reasons for the increase in revenue per vehicle are: a. This quarter, most deliveries were of the latest R1 model, which did not offer discounts, while in Q2 and Q3, a large number of older R1 models (which provided significant discounts) were delivered; b. In terms of sales structure, the introduction of the three-motor R1 (the more expensive version) boosted the average selling price per vehicle, although this was partially offset by the increased proportion of EDV (commercial vans with lower unit prices).

② Secondly, the per vehicle amortized cost decreased by $8,000 quarter-on-quarter, partly due to economies of scale, but mainly because the company accelerated depreciation on the second-generation R1 upgrades in Q2-Q3, and the operational efficiency of the factory improved.

③ However, the most critical point is the reduction in variable costs, which is also what the market is most concerned about. Remember that RIVIAN has repeatedly emphasized that this R1 upgrade involved changing 50% of suppliers, leading to a significant reduction in BOM costs (Rivian previously estimated a 20% decrease in BOM costs from Q1 2024 to Q4 2024).

In reality, the reduction in variable costs this quarter was not significant, decreasing by less than $3,000 quarter-on-quarter, and only $5,000 compared to Q1. Additionally, this quarter also saw contributions from EDV, which has lower costs and higher margins, leading investors to question whether the cost reductions for Rivian's second-generation R1 are not as significant as previously guided by the company.

Combined with the lower-than-expected delivery guidance for 2025, only 46,000 to 51,000 units, below the market expectation of 55,000 units, and even lower than the actual delivery of 51,600 units in 2024, the implied weak demand for R1 raises concerns that the increased revenue per vehicle this quarter may not be sustainable and could continue to decline.

Considering the cost reductions are not meeting expectations, it is foreseeable that the real gross margin expectation for the automotive business in 2025 may not be good, and the upward trend in Q4 2024 may not be sustainable. For detailed analysis, please refer to Dolphin Research's subsequent commentary.