Yahoo Finance

Claire McDonough

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 consistency 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 negative $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 $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're 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 risk 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 sales in the US 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 that 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 impact these items may have on consumer sentiment and demand. As a result of these impacts, we have revised our delivery outlook to 40,000 to 46,000 vehicles.
Due to our strong first quarter results, we are maintaining our outlook range of adjusted EBITDA of negative $1.7 billion to negative $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 to $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 in normal in the first half of 2026. This is the first line of production for our new midsized 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.

Question and Answer Session

Claire McDonough

Dan Levy, Barclays.

Dan Levy

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 US. But what's your strategy around LFP. Maybe you could just confirm, are the LFP sales tariffed as an automotive product at 47.5% or as a nonautomotive product that's 145%.

Robert Scaringe

Yes. 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 turfs. 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. And starting in 2027, those cells will be produced in Arizona. And so that's outstanding for us in terms of the long-term cost structure R2.
And then 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 sale sourcing strategy for R1 as we look at 2026 and beyond.

Dan Levy

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

Claire McDonough

Sure, Dan. We expect the per unit direct impact from tariffs to be a couple of thousand dollars for 2025 based off of the currently announced tariffs in place. And as you can imagine, we're exploring a number of offsets to those cost increases, including strategic sourcing decisions as RJ can be related to some of the batteries over the longer term. And beyond those strategic sourcing decisions 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 and 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

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 US and the USMCA qualified region heavily. Though there is 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. And we still have time to relocate or study some of those flows in the next months before the launch of R2.

Dan Levy

Great. Thank you.

Operator

Adam Jonas, Morgan Stanley.

Adam Jonas

So 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? And can you -- how confident are you can develop this in-house? Or do you need an external partner to help speed things up?

Robert Scaringe

Yeah. Thanks, Adam. I appreciate the question. This is such an enormous focus area for us. And as I said in our opening remarks, I mean we're -- we could 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 sensor set with our Gen 2 vehicles at launch, so dramatic improvement in sensors, a lot of onboard inference in terms of the compute level in the vehicle. And then very importantly, the that feeding our data flywheel.
And 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. So the very high-performance cameras that we have that have great low-light performance, great bright light performance, coupled with multimodality purchase to sensors, so we have 5 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 is growing but make up for that with very high-quality data.
And then as you alluded to, that training that happens for the offline model, if a large perimeter model that's happening through the data that's coming off these vehicles. And so we've seen incredible performance with just that in place. We've just started to -- consumers are just starting to see some of the work that we're doing with the hands-free feature we just launched.
But over the next year, as both the fleet size grows, the data flywheel I talked about continues to ramp up further and further. And then the efficacy of this really rich data set where we control the triggering events on 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 WiFi, so we can very cost effectively move data from our car park into the cloud and then therefore, use it to train our model.
So we're quite bullish on this. I think this data infrastructure I just described is very unique because we don't 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

Thanks, RJ. And 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 earth, which was 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.

Robert Scaringe

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 heavy RF metals that are used in magnets, which is particularly important for electric vehicle, which is using permanent magnet motors. We're very close to the situation. It's quite dynamic as we think about the overall trade environment.
Not saying that there are an array of different solutions to solve this. And I think importantly for us, as we look out in the longer term, planning for R2, developing around heavy rare free motors, so using different types of magnets that are more available. And then, of course, longer term, developing rotor assemblies that don't require rare earth metals.
And so 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. And certainly, some of these trade challenges are going to accelerate that.

Adam Jonas

Thanks RJ.

Operator

Shreyas Patil, Wolf Research.

Shreyas Patil

Just to clarify, I think, Claire, you mentioned $2,000 per vehicle of tariff cost. I just want to make sure I heard that right. And then is -- does that incorporate the latest US manufacturing reimbursement program that the administration announced last week? And if so, is the primary exposure as it relates to tariffs, is that primarily on batteries?

Claire McDonough

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

Shreyas Patil

Okay. Great. And then 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 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. So 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

Sure. In Q1, we saw a $3,300 per unit improvement in COGS and that was despite the fact that we had a higher concentration of our deliveries in Q1 relative to Q4. And as you probably recall, our commercial van has a lower material cost associated with it, so to be able to deliver that level of improvement despite some of the mix was formidable in nature as a whole.
And 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.
And then 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

Okay. Great. Thanks.

Operator

Joseph Spak, UBS.

Joseph Spak

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

Claire McDonough

Sure. So 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. And so that's 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.
And then --

Robert Scaringe

Also, it's on our balance sheet.

Claire McDonough

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. So you'll see more of a steady state run rate in aggregate, excluding some of these impacts from absorption into inventory, and then we'll see that ramp back up with R2 coming online.

Joseph Spak

Okay. And then maybe a good segue to the second question, which is you talked about the over production. You're mentioning this couple thousand 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.
So I mean, rough math, it seems like it should probably be under $100 million total impact for the year. Is that ballpark correct? And I guess I just want to understand if that's changed versus the I think you mentioned last quarter a couple of hundred million impact undisclosed from what, but related to policy.

Claire McDonough

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. So it was a much broader basket is currently still the case as we think about the overall impact for 2025 as a year.
However, as we look at the overall tariff impact, 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. And so we'll have those vehicles which largely don't have tariff impacts associated with them to sell in subsequent quarters as well.

Joseph Spak

Thank you.

Operator

Mark Delaney, Goldman Sachs.

Mark Delaney

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 seen? 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?

Robert Scaringe

Thanks, Mark. Yeah, there's a lot of uncertainty. And I'd characterize as there's a challenging backdrop from a consumer demand point of view. And what we're seeing is the interest in our flagship product, R1 continues to be strong in that this is the -- the R1 is the best-selling premium electric truck or electric SUV across the whole United States, over $70,000. And it's the best-selling premium SUV electric or non-electric in the state of California.
And so in terms of how our products are performing relative to alternatives in the market that 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. And this is what makes us so excited about R2 and 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 average selling price was $88,500 and that's with the vans included.
And so we have a very high ASP, which is a great thing on our flagship product. But by virtue of that, the size of that market is just more limited. And I think in this environment with the level of uncertainty, it becomes even more constrained in this backdrop. But if we can have a fraction of the success we have with R1 in the much bigger market that R2 is operating in, a much, much bigger market that R2 is operating in, and we'll be very happy.

Mark Delaney

That's helpful. And hopefully, the new advertising campaign also is a step forward. I did like the limited advertising campaign that you guys just launched. My other question was on regulatory credits. It came in 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?

Claire McDonough

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

Philippe Houchois, Jefferies.

Philippe Houchois

It's Philippe Houchois, Jefferies. Second 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 what 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

Sure. The dynamics that we saw in the quarter was both a reduction in our raw materials by about $220 million. And then we did have a significant increase of roughly $563 million in our finished goods inventory as a whole. And 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.
But Javier, if you want to comment on some of the initiatives at hand?

Javier Varela

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

Philippe Houchois

Right. That's good to hear. Thank you. And then 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 in the sensors? Or is that separate?

Robert Scaringe

Thanks, Philippe. Yes, 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 doesn't include our in-house compute platform or compute stack or the perception stack that we've developed and of course, not the foundation model and the work that's going into the software to drive our self-driving platform.

Philippe Houchois

Okay. Thank you very much.

Operator

Edison Yu, Deutsche Bank.

Xin Yu

Wanted just to confirm one thing on the comments about tariffs as it relates to R2. Is the current thinking that if the existing regime tariff regime stays that we would not be impacted in the timing of the -- of SOP and also the starting price that we're aiming for?

Robert Scaringe

As you've heard us say a few times here, this is just a dynamic situation. So I want to make sure we reflect that, but we're not planning changes in our $45,000 starting price. This is important for us. And 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 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. But we're also driving that into our supply chain as heavily and aggressively as we can.

Xin Yu

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

Robert Scaringe

I think this is a part of the business that's going to evolve a lot over the next five years. And 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.
And so we see this as really critical from a customer experience point of view. And 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 and 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.
And so we're very bullish on the technology. We think the changes that have happened in terms of use of transformers has completely shifted how we look at this just in the last couple of years. It requires vertical control of a 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.
And so with all that said, we really believe this is going to be a key value driver for customers. Now the question is, how does that value get harvested. So 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. But ultimately, it's going to show up as value to the business in some way. And 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. And what we increasingly see 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 that 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 this type of capability, we may see it show up more as a paid feature.

Xin Yu

Thank you.

Operator

George Gianarikas, Canaccord Genuity.

George Gianarikas

There's a debate around how to increase EV adoption. Obviously, you're bringing R2 and R3 to market to help lower price points to that end. And 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 your own batteries to improve EV penetration in the US and the West?

Robert Scaringe

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. But in our view, there's -- in the United States, in particular, there's a pretty extreme lack of great choices. And when I say an extreme lack of great choices, in particular price points that start below $50,000. And 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 of the segment.
And 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. And there's a very, very small number of compelling choices of EVs under $50,000. And there's an even smaller subset of different form factors.
And so as a result of that lack of choice, we've seen significant market share consolidation with Tesla, and they've got great products with the Model 3, Model Y in that price category, but the market needs more choices. And this is why we're so excited about R2. We really believe this is something that will give consumers an alternative that's in a choice that's really interesting. It's 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.
But saying that, there's other elements here. And 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 allows our customers to use the Tesla network, but we're also building out our own network. And in fact, we referenced it in our shareholder letter, but this is a -- our network is -- there's really only two networks that have the level of uptime that we have, Tesla's network, which is outstanding in our network, which is we have over 700 chargers. The uptime is higher than 98%.
And so consumer reports actually called out specifically our network as being incredibly performing and very easy to use, which is great to see. So we're continuing to scale that network. It's an open network, so it's also revenue generating, which helps build the acceleration of the flywheel, if you will, of that network being expanded.
And I think the last piece, which actually ties to the question that came up before is not for technical reasons, but for -- but in some ways by coincidence, autonomy and electrification are often interlinked. And so I do think the growth of autonomous features. And what we're 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. And so we're quite bullish on what that will represent in terms of driving consumer behavior.

George Gianarikas

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

Robert Scaringe

Yeah, we've -- I mean Claire and I both referenced it, the -- our second consecutive quarter of profitability with the $206 million of gross profit for Q1 does unlock an additional $1 billion in financing from Volkswagen Group. So that's outstanding. But the relationship there continues to progress really well. Our teams are working very closely together.
And 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. And the scale of it with Volkswagen Group being the second largest vehicle manufacturer in the world is really enormous.
And so 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. But 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

Thanks.

Operator

Ben Kallo, Baird.

Ben Kallo

Have you seen an uptick just in demand from everything going on with Tesla? And my second question is about slate auto and what that means to you guys?

Robert Scaringe

Yeah, the -- 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 and the price point is quite a bit different than our flagship product. So rough -- our flagship product, ASPs roughly double Tesla's Model 3, Model Y. And so 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.
And again, jumping off the previous points I made around the need for product selection and diversity of choices. The slate product is in a very different consumer than Rivian product. And I'll always say this, I think it's really important that we have lots of choices. And those choices are not all on top of each other in terms of price positioning, customer demographic vehicle form factors, vehicle positioning.
So it's -- I'm always pleased and encouraged to see new product concepts, new product ideas emerge, and this is one that's certainly not at all playing in the same spaces where Rivian operates today.

Operator

Ronald Jewsikow, Guggenheim Securities.

Ronald Jewsikow

Maybe starting on the delivery guidance changes. Any detail or high-level commentary on if the reduction is primarily from vans or consumer vehicles? And is there some supply risk baked into the reduction? I know you talked about railroad restrictions, Claire? Or is this solely what you're seeing in kind of the current demand backdrop?

Robert Scaringe

We talked about the -- 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. And 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 improved our fixed costs across all of our normal facility.
But 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 is a very close partner and we're 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, but 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. And these are -- having lived through a number of these already. It's -- we're very -- we're acutely aware of the challenges of being short one part. Vehicle has thousands of parts in it, but you can't leave a couple of parts out.
And so our supply chain team has been forged through the supply chain crisis of 2022 and 2023 and has actually -- it's impressively jumped into action with what's happening from an overall trade point of view today. And we feel a lot of that training that happened in 2022, 2023 is proving to be quite fruitful right now.

Ronald Jewsikow

Yes. I appreciate the color there. And then -- it's exciting to see some of 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?
And 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 risk for the R2 launch?

Robert Scaringe

Yeah. I mean we are -- I am starting to trickle out some content. And if it's not obvious, we are so excited about it, and my excitement sort of bleeds through into some of the pictures we're putting out there. But we're -- when we look at the R2 program, this is well underway. So we're producing a pilot scale, what we call validation builds today. And in fact, there's a picture of our validation -- our pilot line in the shareholder letter.
Those vehicles are critical for not just validating the vehicle itself from an engineering standpoint of view but also validating our suppliers and making sure that their processes are robust. And for me, it's is really a meaningful step forward. And it's hard to fully represent this year 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.
And a big part of that is, of course, the team that's grown and that's at all levels. That's our leadership team, that's the platform leadership team, and it's also saying next to me, it's our COO with Javier. And so I'd like to invite Javier 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

Yeah. I was with you last week driven local and on the prototype. And 35 years of experience launching cars in automotive industry. And I can tell you that the dynamic status that we have in this call is amazing. It was awesome and very fun to drive. We had a really great time.
When it comes to the product builds, they are underway that design the validation build is how we call it. And for the equipment, the building, we are increasing the footprint in normal. So the building that will host Body Shop and assembly is finished. And 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. And related to the downtime you were referring, we'll have that downtime in the second half of the year. And that's to integrate in the paint shop that we currently normal delivers R1 in advance to integrate the R2 in there.
So this requires a heavy work in an existing flow requires a downtime and again, is underway. There are still work during the weekends to prepare some of the still work in that paint shop, but the big transformation will come in the second half in that downtime that will be executed as planned. So overall, great progress and as excited as everyone to get the car out in the roads and a great team behind. I really appreciate, and I would take the opportunity to thank all the teams for their great efforts and capabilities put in place.

Ronald Jewsikow

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

Operator

Itay Michaeli, TD Cowen.

Itay Michaeli

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? And 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 trend level?

Robert Scaringe

Yeah. We are -- 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's going to broaden to more urban roads as well. But importantly, moving to hands-off eyes off, so what you might call a true Level 3 is something we're very focused on and delivering that in specific environment, 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's going on R2 relative to R1. So it's a 65 megapixels of cameras. So we've 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, more megapixels than any other vehicle and the dynamic range on those cameras is just incredible. When I say dynamic range, I mean the performance in very low light conditions were in very bright light conditions.
And as I referenced this 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. So we have four-corner radars that are traditional, pretty straightforward radars, but the front center radars and an imaging radar. So it gives us X, Y and Z and that provides a really nice additional modality for which we're training our system.
And when we think about these end-to-end models being trained, the more robust the data set, the faster we see progress. And 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. So how the data is selected, partitioned and fed into the model becomes really key.
So 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. And as we see what's coming with the feature set, it's -- we don't envision our products not having that level of capability.

Itay Michaeli

That's all helpful. Thank you.

Operator

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.

Robert Scaringe

Thanks, everyone, for joining us today. This is a really exciting quarter for us being the second quarter 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 cost 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 economy platform. This is something that it took years of time to implement in our Gen 2 platform in terms of the hardware topology, and we're now just at the beginning of seeing this nonlinear growth rate in terms of capability and features.
And we'll continue to talk more about this. As I said earlier, we're going to be having an autonomy and AI day in the fall. And in that, we'll 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 road map looks like. And hopefully, everyone can see why we're so excited about this internal effort.
So with that, thanks again for the call, and look forward to speaking with everybody next quarter.