Rivian Automotive, Inc. / DE 10-K

Item 8. Financial Statements and Supplementary Data Index to Consolidated Financial Statements Page Rep ort of KPMG LLP - Detroit, MI , Independent Registered Public Accounting Firm (PCAOB ID: 185 ) 74 Consolidated Financial Statements Consolidated Balance Sheets 76 Consolidated Statements of Operations 77 Consolidated Statements of Comprehensive Loss 77 Consolidated Statements of Changes in Contingently Redeemable Convertible Preferred Stock and Stockholders’ (Deficit) Equity 78 Consolidated Statements of Cash Flows 79 Notes to Consolidated Financial Statements 80 73 Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors Rivian Automotive, Inc.: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Rivian Automotive, Inc. and subsidiaries (the Company) as of December 31, 2021 and December 31, 2020, the related consolidated statements of operations, comprehensive loss, changes in contingently redeemable convertible preferred stock and stockholders’ (deficit) equity, and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and December 31, 2020, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles. Change in Accounting Principle As discussed in Note 3 to the consolidated financial statements, the Company has changed its method of accounting for leases as of January 1, 2020 due to the adoption of Accounting Standards Codification Topic 842, Leases . Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Fair value of common stock As discussed in Note 9 to the consolidated financial statements, the Company has granted restricted stock units (RSUs). The grant-date fair values of RSUs, as well as the modification-date fair value of RSUs that were modified and remeasured in June 2021, were estimated based on the fair value of the Company’s common stock on the date of grant or modification. Through July 2021, the fair value of the Company’s common stock underlying the RSUs was based on an independent appraisal. The appraisal incorporated weighting of a backsolve method and a probability-weighted expected return method based on the anticipated probability of an initial public offering (IPO) as of each valuation date. The Company recorded stock-based compensation expense of $570 million for the year ended December 31, 2021, which included expense associated with the RSUs remeasured in June 2021 and certain other RSUs granted through July 2021. We identified the evaluation of the estimated fair value of common stock used to remeasure the modified RSUs in June 2021 and measure certain other RSUs granted through July 2021 as a critical audit matter. Complex and subjective 74 auditor judgment was required to evaluate (1) the selection and weighting of valuation methods used to estimate the fair value of common stock, and (2) the estimated equity value in a potential IPO. The following are the primary procedures we performed to address this critical audit matter. We involved valuation professionals with specialized skills and knowledge, who assisted in evaluating the selection of the valuation methods used by the Company by considering the Company’s equity structure, proximity to a recent financing round, and possible exit scenarios. We evaluated the weighting of valuation methods based on the anticipated probability of an IPO as of the valuation date by: • observing the Company’s actions taken to prepare for an IPO • inspecting the Company’s written plans and other relevant documentation, such as minutes and presentations • assessing the Company’s ability to carry out particular courses of action, including the timeline to a liquidity event (including an IPO) and whether the Company had the financial resources, personnel, and other means to achieve a liquidity event. We evaluated the Company’s estimate of equity value in an IPO scenario, by assessing: • the effect of the Company’s operations and organizational changes on the value of its common stock since its latest funding round, including changes in peer company market capitalizations over a similar time frame • the Company’s valuation using forecasted revenue multiples by comparing them to those of relevant peer companies • information provided by underwriters as part of initial discussions in anticipation of an IPO • the sensitivity of changes in estimated equity value in an IPO scenario on the fair value of common stock used to remeasure the modified RSUs in June 2021 and measure certain other RSUs granted through July 2021. /s/ KPMG LLP We have served as the Company’s auditor since 2021. Detroit, Michigan March 31, 2022 75 RIVIAN AUTOMOTIVE, INC. CONSOLIDATED BALANCE SHEETS (in millions, except per share amounts) December 31, 2020 December 31, 2021 ASSETS Current assets: Cash and cash equivalents (Note 2) $ 2,979 $ 18,133 Accounts receivable, net ( Note 2 ) 6 26 Inventory (Note 2) — 274 Other current assets 31 126 Total current assets 3,016 18,559 Property, plant, and equipment, net ( Note 4 ) 1,445 3,183 Operating lease assets, net ( Note 5 ) 80 228 Other non-current assets 61 324 Total assets $ 4,602 $ 22,294 LIABILITIES, CONTINGENTLY REDEEMABLE CONVERTIBLE PREFERRED STOCK, AND STOCKHOLDERS’ (DEFICIT) EQUITY Current liabilities: Accounts payable $ 90 $ 483 Accrued liabilities ( Note 7 ) 443 667 Customer deposits 28 74 Current portion of long-term debt ( Note 6 ) 28 — Current portion of lease liabilities and other current liabilities 22 89 Total current liabilities 611 1,313 Non-current portion of long-term debt ( Note 6 ) 47 1,226 Non-current lease liabilities ( Note 5 ) 83 218 Other non-current liabilities 1 23 Total liabilities 742 2,780 Commitments and contingencies ( Note 12 ) Contingently redeemable convertible preferred stock, $ 0.001 par value; 508 and 10 shares authorized, and 504 and 0 shares issued and outstanding as of December 31, 2020 and 2021, respectively (N ote 11) 5,244 — Stockholders' (deficit) equity: Common stock, $ 0.001 par value; 712 and 3,508 shares authorized and 101 and 900 shares issued and outstanding as of December 31, 2020 and 2021, respectively (Note 11) — 1 Additional paid-in capital 302 25,887 Accumulated deficit ( 1,686 ) ( 6,374 ) Total stockholders' (deficit) equity ( 1,384 ) 19,514 Total liabilities, contingently redeemable convertible preferred stock, and stockholders' (deficit) equity $ 4,602 $ 22,294 See accompanying notes to these consolidated financial statements. 76 RIVIAN AUTOMOTIVE, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in millions, except per share amounts) Years ended December 31, 2019 2020 2021 Revenues (Note 2) $ — $ — $ 55 Cost of revenues (Note 2) — — 520 Gross profit — — ( 465 ) Operating expenses Research and development (Note 2) 301 766 1,850 Selling, general, and administrative (Note 2) 108 255 1,242 Other expenses (Note 2) — — 663 Total operating expenses 409 1,021 3,755 Loss from operations ( 409 ) ( 1,021 ) ( 4,220 ) Interest income 18 10 3 Interest expense (Note 6) ( 34 ) ( 8 ) ( 29 ) Loss on convertible notes, net (Note 6) — — ( 441 ) Other (expense) income, net ( 1 ) 1 ( 1 ) Loss before income taxes ( 426 ) ( 1,018 ) ( 4,688 ) Provision for income taxes — — — Net loss $ ( 426 ) $ ( 1,018 ) $ ( 4,688 ) Net loss attributable to common stockholders, basic and diluted $ ( 426 ) $ ( 1,019 ) $ ( 4,688 ) Net loss per share attributable to common stockholders, basic and diluted (Note 13) $ ( 4.35 ) $ ( 10.09 ) $ ( 22.98 ) Weighted-average common shares outstanding, basic and diluted 98 101 204 CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (in millions) Years ended December 31, 2019 2020 2021 Net loss $ ( 426 ) $ ( 1,018 ) $ ( 4,688 ) Other comprehensive (loss) income — — — Comprehensive loss $ ( 426 ) $ ( 1,018 ) $ ( 4,688 ) See accompanying notes to these consolidated financial statements. 77 RIVIAN AUTOMOTIVE, INC. CONSOLIDATED STATEMENTS OF CHANGES IN CONTINGENTLY REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ (DEFICIT) EQUITY (in millions) Contingently Stockholders' (Deficit) Equity Redeemable Convertible Additional Preferred Stock Common Stock Paid-In Accumulated Shares Amount Shares Amount Capital Deficit Total BALANCE—December 31, 2018 — $ — 75 $ — $ 154 $ ( 242 ) $ ( 88 ) Capital stock issuance 343 2,750 — — — — — Warrants issuance — — — — 13 — 13 Conversion of convertible notes — — 25 — 126 — 126 Net loss — — — — — ( 426 ) ( 426 ) BALANCE—December 31, 2019 343 $ 2,750 100 $ — $ 293 $ ( 668 ) $ ( 375 ) Capital stock issuance 161 2,500 1 — 6 — 6 Warrants issuance — — — — 3 — 3 Share repurchase and retirement — ( 6 ) — — — — — Net loss — — — — — ( 1,018 ) ( 1,018 ) BALANCE—December 31, 2020 504 $ 5,244 101 $ — $ 302 $ ( 1,686 ) $ ( 1,384 ) Capital stock issuance 72 2,650 185 — 14,181 — 14,181 Conversion of contingently redeemable preferred stock ( 576 ) ( 7,894 ) 576 1 7,893 — 7,894 Conversion of convertible notes — — 38 — 2,941 — 2,941 Stock-based compensation — — — — 570 — 570 Net loss — — — — — ( 4,688 ) ( 4,688 ) BALANCE—December 31, 2021 — $ — 900 $ 1 $ 25,887 $ ( 6,374 ) $ 19,514 See accompanying notes to these consolidated financial statements. 78 RIVIAN AUTOMOTIVE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in millions) Year Ended December 31, 2019 2020 2021 Cash flows from operating activities: Net loss $ ( 426 ) $ ( 1,018 ) $ ( 4,688 ) Depreciation and amortization 7 29 197 Stock-based compensation — — 570 Other expenses (Note 2) — — 643 Loss on convertible notes, net — — 441 Write-down of inventory — — 95 Other non-cash activities 37 41 36 Changes in operating assets and liabilities: Accounts receivable ( 16 ) 11 ( 20 ) Inventory — — ( 369 ) Other current assets ( 8 ) ( 34 ) ( 81 ) Other non-current assets ( 5 ) ( 8 ) ( 8 ) Accounts payable and accrued liabilities 43 121 461 Customer deposits 14 10 46 Other current liabilities 15 1 37 Other non-current liabilities ( 14 ) ( 1 ) 18 Net cash used in operating activities ( 353 ) ( 848 ) ( 2,622 ) Cash flows from investing activities: Capital expenditures ( 199 ) ( 914 ) ( 1,794 ) Net cash used in investing activities ( 199 ) ( 914 ) ( 1,794 ) Cash flows from financing activities: Proceeds from share issuance upon initial public offering, net of underwriting discounts and commissions and offering costs — — 13,530 Proceeds from issuance of capital stock 2,750 2,506 2,658 Proceeds from issuance of convertible notes — — 2,500 Proceeds from issuance of long-term debt, net of discount and debt issuance costs 61 — 1,226 Principal payments and other financing activities — ( 6 ) ( 86 ) Net cash provided by financing activities 2,811 2,500 19,828 Net change in cash 2,259 738 15,412 Cash, cash equivalents, and restricted cash—Beginning of period 14 2,273 3,011 Cash, cash equivalents, and restricted cash—End of period $ 2,273 $ 3,011 $ 18,423 Supplemental disclosure of cash flow information: Cash paid for interest $ 5 $ 4 $ 2 Supplemental disclosure of non-cash investing and financing activities: Capital expenditures included in liabilities $ 98 $ 325 $ 479 Conversion of convertible notes $ 100 $ — $ 2,941 Conversion of convertible preferred stock $ — $ — $ 7,894 Warrants issuance $ 13 $ 3 $ — See accompanying notes to these consolidated financial statements. 79 RIVIAN AUTOMOTIVE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. PRESENTATION AND NATURE OF OPERATIONS Description and Organization Rivian Automotive, Inc. (together with its consolidated subsidiaries, “Rivian” or the “Company”), was incorporated as a Delaware corporation on March 26, 2015. Rivian was formed for the purpose of designing, developing, manufacturing, and selling category-defining electric vehicles (”EVs”), accessories, and related services directly to customers in the consumer and commercial markets. The nature of the Company’s operations during the years ended December 31, 2019, 2020 and 2021 was primarily research and development activities related to vehicle development and its related technologies, and pre-production activities related to manufacturing and sales. However, the Company began making deliveries of the R1T, R1S, and EDV in the United States in 2021. Segment Information The Company’s Chief Executive Officer (“CEO”) has been identified as the chief operating decision maker (“CODM”). As the CODM reviews financial information presented on a consolidated basis for purposes of making operating decisions, allocating resources, and evaluating financial performance, the Company has determined that it operates in one operating segment and one reportable segment. Basis of Presentation The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) and, in the opinion of management, reflect all normal recurring adjustments necessary to fairly present the financial position, results of operations, cash flows, and change in equity for the periods presented. Results for the periods presented are not necessarily indicative of the results that may be expected for any subsequent period. Basis of Consolidation The Company consolidates entities in which it has a controlling financial interest. Intercompany balances and transactions have been eliminated in consolidation. Initial Public Offering In November 2021, the Company completed its underwritten IPO of approximately 176 million shares of Class A common stock at a public offering price of $ 78.00 per share, which included the exercise in full by the underwriters of their option to purchase approximately 23 million additional shares of Class A common stock. The net proceeds to the Company from the IPO were $ 13.5 billion. See Note 11 “ Contingently Re deemable Convertible Preferred Stock and Stockholders ’ (Deficit) Equity ” for more information regarding the IPO. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES For each accounting topic that is addressed in a separate footnote, the description of the accounting policy can be found in the related footnote. Other significant accounting policies are described below. Use of Estimates Accounting estimates are an integral part of the consolidated financial statements. These estimates require the use of judgments and assumptions that may affect the reported amounts of assets, liabilities, and expenses in the periods presented. Estimates are used for, but not limited to, inventory valuation, property, plant, and equipment, leases, income taxes, stock-based compensation, and commitments and contingencies. The Company believes that the accounting estimates and related assumptions employed by the Company are appropriate and the resulting balances are reasonable under the circumstances. However, due to the inherent uncertainties involved in making estimates, the actual results could differ from the original estimates, requiring adjustments to these balances in future periods. 80 RIVIAN AUTOMOTIVE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Cash and Cash Equivalents Cash and cash equivalents include cash on hand, cash in banks, payments due from financial institutions for the settlement of credit card and debit card transactions, and money market funds with maturities of three months or less. All short-term, highly liquid investments that are both readily convertible to known amounts of cash and so near their maturity that they present insignificant risk of changes in value because of changes in interest rates also are classified as cash equivalents. Accounts Receivable, Net Receivables are reported at the invoiced amount, less an allowance for any potential uncollectible amounts. The Company had no allowance for uncollectible amounts as of December 31, 2020 and 2021. Restricted Cash Cash and cash equivalents that are restricted as to withdrawal or use under the terms of certain contractual agreements are classified as restricted cash and are primarily recorded in “Other non-current assets” on the Company’s Consolidate d Balance Sh eet s . Restricted cash primarily consists of the balance of an account under the dominion and control of the administrative agent under the ABL Facility, which will be used to repay outstanding borrowings under the ABL Facility if certain specified events of default occur, and cash held in reserve accounts related to contractual obligations. See Note 6 “ Debt ” for more information on the ABL Facility. Total restricted cash was $ 32 million and $ 290 million as of December 31, 2020 and 2021, respectively. Subsequent to December 31, 2021, the balance of restricted cash increased by $ 250 million due to requirements under the ABL Facility. Inventory Inventories are stated at the lower of cost or net realizable value (“LCNRV”) and consist of raw materials, work-in-progress, finished goods, and service parts. The Company primarily calculates inventory value using standard cost, which approximates actual cost on the first-in, first-out (“FIFO”) basis. Net realizable value (“NRV”) is the estimated selling price of inventory in the ordinary course of business, less estimated costs of completion, disposal, and transportation. The Company assesses the valuation of inventory and periodically adjusts its value for estimated excess and obsolete inventory based upon expectations of future demand and market conditions, as well as damaged or otherwise impaired goods. During the year ended December 31, 2021, the Company recorded a $ 95 million charge to reduce the carrying value of inventory to net realizable value, with the charge reflected in “Cost of revenues” in the Company’s Consolidated Statement of Operations . As of December 31, 2020 the Company’s inventory was not material. As of December 31, 2021, the $ 274 million carrying value of inventory consisted primarily of raw materials. Impairment of Long-Lived Assets (Held-and-Used Long-Lived Assets) We review property, plant and equipment and finite-lived intangible assets for impairment whenever events or changes in circumstances occur that indicate that the carrying amount of an asset may not be fully recoverable. Events that trigger a test for recoverability include material adverse changes in projected revenues and expenses, present cash flow losses combined with a history of cash flow losses and a forecast that demonstrates significant continuing losses, significant negative industry or economic trends, a current expectation that a long-lived asset group will be disposed of significantly before the end of its useful life, a significant adverse change in the manner in which an asset group is used or in its physical condition, or when there is a change in the asset grouping. We initially assess the risk of impairment based on an estimate of the undiscounted cash flows at the lowest level for which identifiable cash flows exist against the carrying value of the asset group. Impairment is indicated when the carrying value of the asset group exceeds the estimated future undiscounted cash flows generated by those assets. When impairment is indicated, the Company records an impairment charge for the difference between the carrying value of the asset group and its estimated fair market value. Depending on the asset, estimated fair market value may be determined either by use of a discounted cash flow model or by reference to estimated selling values of assets in similar condition. 81 RIVIAN AUTOMOTIVE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Revenues The Company primarily recognizes revenue from the sale of EVs to consumers. Revenue from the sale of EVs is recognized upon delivery, when control of the EV transfers to the customer. Payment for EV sales is due prior to or upon delivery, and an insignificant amount of revenue is recognized after delivery for performance obligations satisfied over time. Sales are subject to a right of return and involve variable consideration for certain sales to employees. The expected value of variable consideration is used to estimate the transaction price. Variable consideration is included in the transaction price only to the extent it is probable that a significant reversal of revenue recognized will not occur. The transaction price is allocated based on the estimated relative standalone selling price of each performance obligation. The Company utilizes directly observable standalone selling prices when possible. If not available, the standalone selling prices are estimated using appropriate methods, such as the “adjusted market assessment” approach, “expected cost plus a margin” approach, and others. Contract Liabilities The Company recognizes contract liabilities when payments are received or due before the related performance obligation is satisfied. The Company’s contract liabilities exclude fully-refundable customer deposits. The Company’s contract liabilities were not material during the year ended December 31, 2021 and were recorded in Current portion of lease liabilities and other current liabilities ” on the Consolidated Balance Sheets . The increase in contract liabilities resulted from sales to customers with payment due prior to delivery of the EV. Because the Company’s contracts generally have an original expected duration of one year or less, the Company has not disclosed the aggregate amount of the transaction price in contracts with customers that is related to unsatisfied or partially unsatisfied performance obligations as of December 31, 2021. Cost of Revenues Cost of revenues primarily relates to the cost of EVs and includes direct parts, material and labor costs, manufacturing overhead (e.g., depreciation of machinery and tooling), inbound shipping and logistics costs, and reserves for estimated warranty costs. Cost of revenues also includes adjustments to write down the carrying value of inventory when it exceeds its estimated NRV and to provide for on-hand inventory that is either obsolete or in excess of forecasted demand. Costs to develop software that is integral to the Company’s EVs are recognized as expenses as they are incurred. Fair Value Measurements A three-level valuation hierarchy, based upon observable and unobservable inputs, is used for fair value measurements. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions based on the best evidence available. These two types of inputs create the following fair value hierarchy: • Level 1 – Quoted prices for identical instruments in active markets • Level 2 – Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations whose significant inputs are observable • Level 3 – Instruments with model-derived valuations whose significant inputs are unobservable The Company’s money market funds are classified within Level 1 of the fair value hierarchy because they are valued using quoted prices in active markets. As of December 31, 2020 and 2021, money market funds totaled $ 2,782 million and $ 13,048 million, respectively. The carrying values of the Company’s accounts receivable, accounts payable and accrued expenses approximated their fair values at December 31, 2020 and 2021, due to the short period of time to maturity or repayment. The Company’s debt instruments are classified within Level 2 of the fair value hierarchy because they are valued using quoted prices for inactive markets or have significant inputs that are observable. As of December 31, 2020 and 2021 the fair value of debt approximated their carrying value. See Note 6 “Debt” for more information. During the year ended December 31, 2021, there were no transfers between the levels of the fair value hierarchy. 82 RIVIAN AUTOMOTIVE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Employee Benefit Plan The Company provides a defined contribution plan for substantially all employees in the United States in which the Company provides discretionary matching contributions. The Company made matching contributions to the defined contribution plan for the years ended December 31, 2019, 2020 and 2021 which were not material. Research and Development Costs Research and development (“R&D”) costs consist primarily of personnel costs for teams in engineering and research, prototyping expenses, contract and professional services, amortized equipment costs, and allocation of indirect costs. R&D costs are expensed as incurred. Selling, General, and Administrative Advertising costs are recorded in “Selling, general, and administrative” in the Consolidated Statement of Operations as they are incurred. The advertising costs recognized during the years ended December 31, 2019, 2020 and 2021 were not material. Other Expenses Upon the IPO, the Company donated approximately 8 million shares of Class A common stock and $ 20 million cash to Forever by Rivian. As a result, $ 663 million was recorded in “Other expenses” in the Consolidated Statement of Operations during the year ended December 31, 2021. Concentration of Risk Counterparty Credit Risk Financial instruments that potentially subject the Company to concentration of counterparty credit risk consist of cash and cash equivalents, restricted cash, deposits, and loans. We are exposed to credit risk to the extent that our cash balance with a financial institution is in excess of Federal Deposit Insurance Company insurance limits. The degree of counterparty credit risk will vary based on many factors including the duration of the transaction and the contractual terms of the agreement. Management evaluates and approves credit standards and oversees the credit risk management function related to investments. As of December 31, 2020 and 2021, all of the Company’s cash and cash equivalents were placed at financial institutions that management believes are of high credit quality. These amounts are typically in excess of insured limits. Supply Risk The Company is subject to risks related to its dependence on its suppliers, the majority of which are single-source providers of parts or components for the Company’s products. Any inability of the Company’s suppliers to deliver necessary product components, including semiconductors, at timing, prices, quality, and volumes that are acceptable to the Company could have a material and adverse impact on Rivian’s business, growth prospects, and financial and operating results. The Company’s manufacturing facility in Normal, Illinois (the “Normal Factory”) is operational, and Rivian is continuing to invest in the Normal Factory. The Company’s ability to sustain production depends, among other things, on the readiness and solvency of suppliers and vendors through all macroeconomic factors, including factors resulting from the COVID-19 pandemic. 83 RIVIAN AUTOMOTIVE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3. NEW ACCOUNTING STANDARDS Recently Adopted Accounting Standards The Financial Accounting Standards Board’s Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) requires the recognition of assets and liabilities for leases that are not short-term. The Company adopted the provisions of the ASU, along with the provisions of all other issued ASUs containing related amendments, on January 1, 2020. The Company elected to use hindsight to determine whether lease terms included periods covered by options to extend or terminate a lease, did not reassess existing or expired land easements that were not previously accounted for as leases, and did not elect to apply the “package of three” practical expedients available upon adoption. Amounts in the consolidated financial statements and accompanying notes prior to January 1, 2020 have not been restated and continue to be reported in accordance with the legacy accounting requirements in Accounting Standards Codification (“ASC”) Topic 840, Leases. The adoption of the ASU did not have a material impact on the Company’s consolidated financial statements. ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity simplifies (i) the accounting for convertible financing instruments issued, including preferred stock, (ii) the derivatives scope exception for contracts in an entity’s own equity, and (iii) the calculation of earnings per share. Early adoption is permissible, and the Company elected to early adopt the provisions of the ASU on January 1, 2021. The adoption of the ASU did not have a material impact on the Company’s consolidated financial statements. ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments amends the measurement of (i) assets measured at amortized cost by including an entity’s current estimate of all expected credit losses and broadening the information that an entity must consider in developing its expected credit loss estimate and (ii) available-for-sale debt securities by requiring estimated credit losses to be presented as an allowance rather than a write-down. The Company adopted the provisions of the ASU, along with the provisions of all other issued ASUs containing related amendments, on January 1, 2021. The adoption of these ASUs did not have a material impact on the Company’s consolidated financial statements. Upcoming Accounting Standards Not Yet Adopted ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting provides optional expedients and exceptions to the accounting for contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate “LIBOR” or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions provided do not apply to contract modifications made and most hedging relationships entered into or evaluated after December 31, 2022. The Company expects to adopt the provisions of the ASU as of the beginning of any interim period in which LIBOR is discontinued from the Company’s transactions that reference LIBOR. The Company is currently evaluating the potential impact of the ASU on the consolidated financial statements. 4. PROPERTY, PLANT, AND EQUIPMENT, NET Property, plant, and equipment are recorded at cost, net of accumulated depreciation and impairments. Costs of routine maintenance and repair are expensed when incurred. The Company capitalizes certain qualified costs incurred in connection with the development of software used internally. Costs incurred during the application development stage are evaluated to determine whether the costs meet the criteria for capitalization. Costs related to preliminary project activities and post implementation activities, including maintenance, are expensed as incurred. Property, plant, and equipment are primarily depreciated using the straight-line method over the estimated useful life of the asset. Leasehold improvements are amortized over the period of lease or the life of the asset, whichever is shorter, using the straight-line method. Capitalized costs related to software used internally are amortized using the straight-line method over the estimated useful life of the asset. Land is not depreciated. 84 RIVIAN AUTOMOTIVE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table summarizes the components of “Property, plant, and equipment, net” (in millions): Estimated Useful Lives December 31, 2020 December 31, 2021 Land, buildings, and building improvements 10 to 30 years $ 88 $ 429 Leasehold improvements Shorter of 10 years or lease term 51 191 Machinery, equipment, vehicles, and office furniture 5 to 15 years 88 1,856 Computer equipment, hardware, and software 3 to 10 years 51 180 Construction in progress 1,205 760 Total property, plant, and equipment 1,483 3,416 Accumulated depreciation and amortization ( 38 ) ( 233 ) Total property, plant, and equipment, net $ 1,445 $ 3,183 Depreciation and amortization expense was $ 7 million, $ 29 million, and $ 197 million for the years ended December 31, 2019, 2020 and 2021, respectively. 5. LEASES The Company leases real estate, machinery, equipment and vehicles under agreements with contractual periods ranging from one month to 12 years. Leases generally contain extension or renewal options, and some leases contain termination options. After considering all relevant economic and financial factors, the Company includes periods covered by renewal or extension options that are reasonably certain to be exercised in the lease term and excludes periods covered by termination options that are reasonably certain to be exercised from the lease term. The Company determines whether a contractual arrangement is or contains a lease at inception. The Company has lease agreements with lease and non-lease components and has elected to utilize the practical expedient to account for lease and non-lease components together as a single combined lease component, with the exception of leases of real estate which is comprised of land and buildings. For leases of land and buildings, the Company accounts for each component separately based on the relative estimated standalone price of each component. At lease commencement, the Company measures the lease liability at the present value of lease payments not yet paid. All variable payments that are not based on a market rate or an index (e.g., the Consumer Price Index) are excluded from the measurement of the lease liability and instead are recognized as expense when paid. Because the discount rate implicit in the lease is not determinable for most leases, the Company determines the appropriate discount rate using the estimated incremental borrowing rate for the lease based on the information available at lease commencement. Right-of-use assets are measured at the amount of the lease liability, adjusted for prepaid or accrued lease payments, lease incentives, and initial direct costs incurred, as applicable. Leases that are economically similar to the purchase of an asset are classified as finance leases. The Company’s carrying value of finance leases is not material for all periods reported. Lease expense for operating leases is recognized on a straight-line basis over the lease term. The Company does not recognize right-of-use assets and lease liabilities for short-term leases with an original lease term of 12 months or less. Instead, expense representing the rent payments is recognized on a straight-line basis over the lease term within “Selling, general, and administrative” in the Consolidated Statement of Operations . Operating lease assets are recorded net of accumulated amortization. The following table presents the carrying value of operating lease right-of-use assets and lease liabilities recorded within the corresponding line items on the Company’s Consolidated Balance Sheets at December 31, 2020 and 2021 (in millions): December 31, 2020 December 31, 2021 Operating lease assets, net $ 80 $ 228 Current portion of lease liabilities and other current liabilities $ 18 $ 46 Long-term lease liabilities 83 218 Total lease liabilities $ 101 $ 264 85 RIVIAN AUTOMOTIVE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table summarizes the contractual maturities of operating lease liabilities as of December 31, 2021 (in millions): Operating Leases 2022 $ 54 2023 53 2024 49 2025 44 2026 37 Thereafter 65 Total undiscounted liabilities 302 Less: Present value discount ( 38 ) Total lease liabilities $ 264 The future minimum lease payments for leases that have not yet commenced are not material at December 31, 2021. The leases will commence in 2022 and 2023, with lease terms ranging from 1 year to 10 years. Total lease cost for the year ended December 31, 2020 was not material. Total least cost of $ 43 million for the year ended December 31, 2021 was comprised primarily of operating lease cost and recorded in “Selling, general, and administrative” in the Consolidated Statement s of Operations . The weighted average remaining lease term and weighted average discount rate for operating leases at December 31, 2020 and 2021 were as follows: December 31, 2020 December 31, 2021 Weighted average remaining operating lease term (in years) 5.8 6.1 Weighted average operating lease discount rate 3.8 % 4.0 % Supplemental cash flow information related to operating leases for the year ended December 31, 2020 and 2021 is as follows (in millions): December 31, 2020 December 31, 2021 Cash paid for amounts included in the measurement of operating lease liabilities $ 11 $ 31 Right-of-use assets obtained in exchange for operating lease liabilities (non-cash) $ 87 $ 178 Operating lease expense for the year ended December 31, 2019 was not material. 86 RIVIAN AUTOMOTIVE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6. DEBT The following table summarizes the Company’s outstanding debt: Maturities December 31, 2020 December 31, 2021 Amount (in millions) Effective Interest Rate Amount (in millions) Effective Interest Rate Term Facility 2022 $ 79 4.9 % $ — — % 2026 Notes 2026 — — % 1,250 7.0 % Total Long Term Debt 79 1,250 Less unamortized discount and debt issuance costs ( 4 ) ( 24 ) Notes payable, less unamortized discount and debt issuance costs 75 1,226 Less: Current portion ( 28 ) — Total note payable, less current portion $ 47 $ 1,226 Term Facility In April 2018, the Company entered into a variable rate Term Facility Agreement for a committed facility to be used towards the Company’s and its subsidiaries’ operating expenses and capital expenditures (“Term Facility”). As of December 31, 2020, the amount drawn on the Term Facility was $ 79 million. In February 2021, the Company paid all outstanding amounts related to the Term Facility. The Term Facility was scheduled to mature in May 2022, the four th anniversary of the first borrowing under the loan. Maturity payments were scheduled to begin in 2021. Rivian’s obligations under the Term Facility Agreement were backed by guarantees from two of its subsidiaries, as well as an affiliate of a stockholder of the Company. Interest on the Term Facility was paid based on the LIBOR plus 4.3 %. As of December 31, 2020, the stated interest rate for borrowings under the Term Facility Agreement was 4.5 %. As the Term Facility was variable rate debt, the carrying value of the Term Facility approximated fair value. In connection with the Term Facility Agreement, the Company issued common stock warrants to the affiliate of the stockholder on the date thereof (“Initial Common Stock Warrant”) and on each anniversary thereafter (“Anniversary Common Stock Warrants”) until the Term Facility Agreement was terminated. The Initial Common Stock Warrant was classified as a debt issuance cost and recorded as an increase to Additional paid-in capital on the Consolidated Balance Sheets . The debt issuance cost was subsequently amortized over the periods the Term Facility was outstanding. The Anniversary Common Stock Warrants were classified as prepaid expenses and recorded as an increase to Additional paid-in capital on the Consolidated Balance Sheets . The prepaid expenses were subsequently amortized over the respective annual period following the grant of each Anniversary Common Stock Warrant. Refer to Note 11 "Contingently Redeemable Convertible Preferred Stock and Stockholders’ (Deficit) Equity" for further details regarding stock warrants. 2021 Convertible Notes In July 2021, the Company issued $ 2,500 million aggregate principal amount of unsecured senior convertible promissory notes due July 2026 in a private offering (“2021 Convertible Notes”) and made an irrevocable election to account for the 2021 Convertible Notes under the Fair Value Option in accordance with ASC Topic 825, Financial Instruments. As a result, the 2021 Convertible Notes were initially recognized as a liability measured at issue-date estimated fair value and subsequently re-measured to estimated fair value as of September 30, 2021. The 2021 Convertible Notes accrued interest quarterly at a rate of (i) zero percent ( 0 %) from the date of issuance to, and including, June 30, 2022 and (ii) five percent ( 5 %) after June 30, 2022. The Company made no cash interest payments on the 2021 Convertible Notes during the year ended December 31, 2021. 87 RIVIAN AUTOMOTIVE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Upon the Company’s IPO, the 2021 Convertible Notes converted into 38 million shares of Class A common stock at a conversion price equal to $ 66.30 per share. During the year ended December 31, 2021, the loss on the 2021 Convertible Notes is recognized in “Loss on convertible notes, net” in the Consolidated Statement of Operations and is calculated as follows (in millions): Year Ended December 31, 2021 Fair value of shares issued upon conversion Unpaid principal balance Loss on convertible notes, net 2021 Convertible Notes $ 2,941 $ 2,500 $ ( 441 ) ABL Facility In May 2021, the Company, through various of its subsidiaries, entered into a senior secured asset-based revolving credit facility (“ABL Facility”) with a syndicate of banks that may be used for general corporate purposes. The ABL Facility is secured by certain current assets of the Company. The ABL Facility provides for a $ 750 million committed secured revolving credit facility with an annual interest rate between 1.25 % and 1.75 % plus LIBOR that matures on May 20, 2025. Availability under the ABL Facility is based on the lesser of the borrowing base and the committed $ 750 million cap and is reduced by borrowings and the issuance of letters of credit which bear a fronting fee of 0.125 % plus interest per annum. Interest on LIBOR borrowings under the ABL Facility is due at maturity of each LIBOR period, and interest on non-LIBOR borrowings under the ABL Facility is due on a quarterly basis. The Company is required to pay a quarterly commitment fee of 0.25 % per annum based on the unused portion of the ABL Facility. The ABL Facility contains certain affirmative and negative covenants and conditions to borrowing or taking other actions that restrict certain of the Company’s subsidiaries’ ability to, among other things, incur debt, grant liens, make investments, enter into certain transactions with affiliates, pay dividends, and prepay junior or unsecured indebtedness, subject to certain exceptions. The covenants include a minimum liquidity requirement and fixed charge coverage ratio calculated quarterly. As of December 31, 2021, the Company was in compliance with all covenants required by the ABL Facility. As of December 31, 2021, the Company had no borrowings under the ABL Facility and $ 103 million of letters of credit outstanding, resulting in availability under the ABL Facility of $ 306 million after giving effect to the borrowing base and the outstanding letters of credit. 2026 Notes In October 2021, the Company issued $ 1,250 million aggregate principal amount of senior secured floating rate notes due October 2026 (the “2026 Notes”) to new and existing investors of the Company. Proceeds received, net of a $ 25 million original issue discount (“OID”), may be used for general corporate purposes. The 2026 Notes bear interest at (x) six-month LIBOR, subject to a 1.00 % floor, plus (y) 6.00 % per annum, subject to downward adjustment upon certain events, including an IPO. Upon the Company’s IPO, the interest rate on the 2026 Notes was adjusted downward and as of December 31, 2021, the interest rate on the notes was 6.63 %. Interest on the 2026 Notes is paid in cash semi-annually in arrears on April 15 and October 15 of each year. The Company has the option to redeem the notes at any time at 100 % of the principal amount of the 2026 Notes, plus any applicable premium. The 2026 Notes are secured by a second priority security interest in the same assets in which the ABL Facility has a first priority security interest and are guaranteed by certain subsidiaries of the Company. The 2026 Notes contain a number of customary covenants similar to the covenants under the ABL Facility, including a minimum liquidity covenant. As of December 31, 2021, the Company was in compliance with all covenants required by the 2026 Notes. 88 RIVIAN AUTOMOTIVE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Interest Expense The components of “Interest expense” recorded in the Consolidated Statements of Operations are as follows (in millions): Years Ended December 31, 2019 2020 2021 Amortization of discount and debt issuance costs $ 22 $ 3 $ 7 Contractual interest expense 12 5 22 Total interest expense $ 34 $ 8 $ 29 7. ACCRUED LIABILITIES The carrying value of “Accrued liabilities” on the Consolidated Balance Sheets includes the following components that were not yet paid by the Company as of December 31, 2020 and 2021 (in millions): December 31, 2020 December 31, 2021 Capital and other expenditures $ 384 $ 490 Payroll 44 94 Services 5 27 Other 10 56 Total accrued liabilities $ 443 $ 667 8. INCOME TAXES Components of Income Taxes The Company’s tax rate is generally a function of the tax rates in the jurisdictions in which the Company operates, the relative amount of income earned by jurisdiction, and the relative amount of losses or income for which no tax benefit or expense is recognized due to a valuation allowance. The components of ”Loss before income taxes” in the Consolidated Statement s of Operations for the years ended December 31, 2019, 2020 and 2021 are as follows (in millions): Years Ended December 31, 2019 2020 2021 Loss before income taxes United States $ ( 427 ) $ ( 1,021 ) $ ( 4,590 ) Foreign 1 3 ( 98 ) Total loss before income taxes $ ( 426 ) $ ( 1,018 ) $ ( 4,688 ) Based on United States tax regulations applicable to Rivian, the Company does not anticipate foreign earnings would be subject to a 21% corporate income tax rate upon repatriation. Accordingly, no provision for United States tax on undistributed earnings of foreign subsidiaries has been made. Distributions of unremitted foreign earnings would be subject to foreign withholding taxes. The Company maintains that foreign earnings will be indefinitely reinvested unless expressly stated to the contrary. Provisions are made for estimated United States and foreign income taxes which may be incurred on the reversal of the basis differences in investments in foreign subsidiaries and corporate joint ventures not deemed to be indefinitely reinvested. Provisions have not been made on basis differences in investments that primarily result from earnings in foreign subsidiaries which are deemed indefinitely reinvested. If recorded the deferred tax liability associated with indefinitely reinvested basis differences would be immaterial to the financial statements. 89 RIVIAN AUTOMOTIVE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Deferred tax assets and liabilities are recognized based on the future tax consequences attributable to (i) temporary differences that exist between the carrying value of assets and liabilities and their respective tax bases and (ii) operating loss and tax credit carryforwards on a taxing jurisdiction basis. The Company measures deferred tax assets and liabilities using enacted tax rates that will apply in the years in which the temporary differences are expected to be recovered or paid. The Company’s accounting for deferred tax consequences adheres to the requirements of U.S. GAAP to reduce the measurement of deferred tax assets not expected to be realized. The Company considers all available evidence, both positive and negative, to determine whether a valuation allowance is needed. If, based on the weight of available evidence, it is more likely than not that the deferred tax assets will not be realized, a valuation allowance is recorded. As of December 31, 2021, the Company recorded valuation allowances of $ 1,458 million for the portion of deferred tax assets that is not expected to be realized. The valuation allowance on net deferred tax assets increased by $ 105 million, $ 293 million, and $ 988 million during the years ended December 31, 2019, 2020 and 2021, respectively. The changes in the valuation allowance are primarily due to additional United States deferred tax assets and liabilities recognized in the respective years. The Company had no releases of valuation allowances for the years ended December 31, 2020 and 2021. The Company continues to monitor the realizability of the United States deferred tax assets taking into account multiple factors, including results of operations. The Company shall continue maintaining a full valuation allowance on United States deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances. Release of all, or a portion, of the valuation allowances would result in the recognition of certain deferred tax assets and a decrease to income tax expense for the period the release is recorded. A reconciliation of the provision for income taxes to its components at the United States statutory rate for the years ended December 31, 2019, 2020 and 2021 is shown below (in millions): Years Ended December 31, 2019 2020 2021 Federal income tax at statutory rate $ ( 90 ) $ ( 214 ) $ ( 984 ) State income taxes ( 20 ) ( 52 ) ( 236 ) Permanent items 1 4 8 Nondeductible charitable contributions — — 172 Nondeductible loss on convertible debt — — 118 Nondeductible interest 8 — — Tax credits ( 11 ) ( 31 ) ( 63 ) Other — — ( 3 ) Valuation allowance 105 293 988 Tax credit limitation 7 — — Provision for income taxes $ — $ — $ — The Company’s effective tax rate was 0 % for the years ended December 31, 2019, 2020 and 2021. Foreign income taxes were not material during the years ended December 31, 2019, 2020 and 2021. 90 RIVIAN AUTOMOTIVE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Components of Deferred Tax Assets and Liabilities The components of deferred tax assets and liabilities as of December 31, 2020 and 2021 are as follows (in millions): December 31, 2020 December 31, 2021 Deferred tax assets: Net operating loss and tax credit carryforwards $ 453 $ 1,218 Inventory — 142 Lease liabilities 26 71 Stock-based compensation — 118 Other 18 50 Total deferred tax assets 497 1,599 Less: valuation allowances ( 470 ) ( 1,458 ) Total net deferred tax assets 27 141 Deferred tax liabilities: Property, plant, and equipment ( 6 ) ( 78 ) Operating lease assets ( 21 ) ( 62 ) Total deferred tax liabilities ( 27 ) ( 140 ) Net deferred tax assets $ — $ 1 The majority of the Company's gross loss carryforwards are generated in the United States. Federal net operating losses (“NOLs”) generated by the Company through December 31, 2017 totaling $ 81 million may be carried forward for 20 years and begin to expire in 2035. These NOLs may fully offset taxable income in the year utilized. Under the Tax Cuts and Jobs Act, federal losses generated in tax years beginning after December 31, 2017, totaling $ 4,234 million, may be carried forward indefinitely; but their deduction is limited to 80% of annual taxable income. In addition, the Company has federal and state tax credit carryforwards of $ 100 million that can be carried forward for 20 years and begin to expire in 2039. The NOLs and tax credits are fully offset by a valuation allowance. Additionally, the Company has $ 3,375 million of carryforwards for state NOLs. Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended (the “Code”), if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes (such as R&D tax credits) to offset its post-change income may be limited. If the Company experiences a greater than 50 percentage point aggregate change in ownership of certain significant stockholders over a three-year period, a Section 382 ownership change could be deemed to have occurred. If a Section 382 change occurs, the Company’s future utilization of the NOLs and credits as of the ownership change will be subject to an annual limitation under Section 382 of the Code and similar state provisions. Such an annual limitation may result in the expiration of NOLs before utilization. Due to previous ownership changes experienced by the Company, tax credits are limited in their utilization and the amounts above reflect such adjustment. NOLs are not expected to be limited. The Company records uncertain tax positions using a two-step process. First; by determining whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position, and second; for those tax positions that meet the more-likely-than-not recognition threshold, by recognizing the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. The Company includes interest and penalties related to income tax matters within the provision for income taxes. As of December 31, 2020 and 2021, the Company has no t recorded any amounts related to uncertain tax positions. The Company is subject to taxation and files income tax returns in the United States federal jurisdiction, plus state and foreign jurisdictions. Tax years after 2017 remain open in our major jurisdictions and are subject to examination by the taxing authorities. 91 RIVIAN AUTOMOTIVE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9. STOCK-BASED COMPENSATION Stock Plans The Company's 2015 Long-Term Incentive Plan ("2015 Stock Plan") and 2021 Incentive Award Plan (“2021 Stock Plan” and, together, “Stock Plans”) permit the grant of stock options, RSUs, and other stock-based awards to employees, non-employee directors, and consultants. The 2021 Stock Plan became effective when the registration statement filed in connection with the Company’s IPO became effective. The Company’s stock options have seven - or ten-year contractual terms and unvested stock options and RSUs generally are forfeited upon the termination of a grantee’s service. The Company has elected to recognize forfeitures as an adjustment to compensation expense for options and RSUs in the same period as the forfeitures occur. As of December 31, 2021, 101 million and 99 million shares were reserved for issuance under the 2015 Stock Plan and 2021 Stock Plan, respectively. Generally, the Company’s stock options vest in annual installments based on a requisite service period of four years of continuous service and may contain performance conditions related to production and other targets. Stock options granted under the 2015 Stock Plan may be exercised only upon the occurrence of a Change in Control (as defined under the 2015 Stock Plan, which includes an IPO), which is a performance condition. RSUs generally vest in quarterly installments based on a requisite service period of four years of continuous service, upon the later of the quarterly vest date and six months after the occurrence of an IPO (as defined under the Stock Plans), which is a performance condition. Achievement of the Change in Control- and IPO-based performance conditions of stock options and RSUs granted under the 2015 Stock Plan is not deemed to be probable until such events occur. Therefore, no awards granted under the 2015 Stock Plan vested, were expected to vest, or were exercisable prior to the Company’s November 2021 IPO. Accordingly, the Company recognized no stock-based compensation expense prior to the IPO. In January 2021, the Company granted a stock option covering 27 million shares valued at $ 241 million to its CEO. A portion of the stock option contains only a service condition, which vests over a requisite service period of six years following a Qualified IPO (as defined within the award). The other portion of the stock option contains both a service and a market condition, which vests in installments based on the achievement of share price goals following a Qualified IPO , measured over a specified period ending on the tenth anniversary of the award. During June 2021, the Company modified the service-based vesting terms of approximately 17 million RSUs. As achievement of the performance condition of the RSUs was not considered probable both before and after the modification, the fair value of the RSUs was remeasured on the date of modification, which resulted in an increase in unrecognized stock-based compensation cost of approximately $ 322 million. During October 2021, the Company modified the service-based vesting terms of approximately 5 million stock options. As achievement of the performance condition of the stock options was not considered probable both before and after the modification, the fair value of the stock options was remeasured on the date of modification, which resulted in an increase in unrecognized stock-based compensation cost of approximately $ 275 million. 92 RIVIAN AUTOMOTIVE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table summarizes the Company’s stock option and restricted stock unit activity during the year ended December 31, 2021: Stock Options RSUs Weighted Average Weighted Number of Weighted Remaining Aggregate Number of Average Shares Average Contractual Intrinsic Value Shares Grant Date (in millions) Exercise Price Life (years) (in millions) (in millions) Fair Value Outstanding at December 31, 2020 39 $ 4.19 12 $ 7.24 Granted 29 22.06 26 43.94 Exercised / Vested ( 1 ) 3.29 — — Forfeited / Cancelled ( 2 ) 4.73 ( 1 ) 27.36 Outstanding at December 31, 2021 65 $ 12.06 7.7 $ 6,018 37 $ 31.24 Vested and expected to vest at December 31, 2021 65 $ 12.06 7.7 $ 6,018 37 $ 31.24 Exercisable at December 31, 2021 22 $ 3.95 6.6 $ 2,161 — $ — The weighted-average fair value of stock options granted during the years ended December 31, 2019, 2020 and 2021 was $ 1.26 , $ 2.28 , and $ 10.03 , respectively. There were no stock options exercised during the years ended December 31, 2019 and 2020. The aggregate intrinsic value of stock options exercised during the year ended December 31, 2021 was $ 127 million. There were no RSUs granted during the year ended December 31, 2019, and the weighted-average fair value of RSUs granted during the year ended December 31, 2020 was $ 7.23 . During the years ended December 31, 2019 and 2020, the Company recognized no stock-based compensation expense for the Stock Plans and ESPP. The following table summarizes Company’s stock-based compensation expense for the Stock Plans and ESPP recognized for the year ended December 31, 2021 by line item in the Consolidated Statements of Operations (in millions): December 31, 2021 Cost of revenues $ 16 Research and development 277 Selling, general, and administrative 277 Total stock-based compensation expense for the Stock Plans and ESPP $ 570 The stock-based compensation expense for the Stock Plans recognized for the year ended December 31, 2021 reflects the fair value of stock options and RSUs that are vested as of December 31, 2021. As of December 31, 2021, the Company’s unrecognized stock-based compensation expense for awards outstanding under the Stock Plans was approximately $ 1,491 million, which is expected to be recognized over a weighted-average period of 3.8 years. Fair Value Assumptions The fair value of the stock options granted to the CEO in January 2021 was estimated using a Monte Carlo simulation capturing scenarios of the Company's projected stock price over the ten-year time horizon, with the resulting intrinsic value at maturity of the stock options in each scenario discounted to present value. 93 RIVIAN AUTOMOTIVE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The assumptions used in the Monte Carlo simulation are as follows: Year Ended December 31, 2021 Volatility 50.0 % Dividend yield — % Risk-free rate 1.1 % Maturity (in years) 10.0 Initial stock price $ 21.72 The exercise price of all stock options granted during the years ended December 31, 2019, 2020 and 2021 was equal to or greater than the fair market value of Rivian's stock at the date of grant. The Company generally estimates the fair value of stock options using a Black-Scholes option pricing model. Expected volatility is based on historical volatility rates of peer companies. The dividend yield is estimated based on the rate at which the Company expects to provide dividends. The risk-free rate is based on the United States Treasury yield curve for zero-coupon Treasury notes with maturities approximating the respective expected term of the stock option. The expected term represents the average time the Company’s stock options are expected to be outstanding. As the stock options were not exercisable prior to the IPO, the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term. As a result, for stock options, the expected term is estimated based on the weighted-average midpoint of expected vest date and expiration date. The weighted-average assumptions used in the Black-Scholes option pricing model for stock options granted during the years ended December 31, 2019, 2020 and 2021 are as follows: Years Ended December 31, 2019 2020 2021 Volatility 34.5 % 41.3 % 49.5 % Dividend yield — % — % — % Risk-free rate 1.8 % 0.3 % 1.1 % Expected term (in years) 6.9 5.3 5.6 Prior to the Company’s IPO, the stock price input to the estimated fair value of stock options and the fair value of RSUs was measured on the grant date (or modification date, if appropriate) based on an independent appraisal of the fair market value of the Company’s common stock. The independent appraisal used a market approach with an adjustment for lack of marketability given that the shares underlying the awards were not publicly traded. This assessment required complex and subjective judgments regarding the Company’s projected financial results. The appraisal incorporated a backsolve method to the Company’s most recent equity issuance and a PWERM that estimated equity value in an IPO scenario. The fair value of a share of the Company’s common stock was estimated by weighting the backsolve and PWERM valuation methods based on the anticipated probability of an IPO as of each valuation date. In light of initial information received in estimation of the Company’s IPO price range and the proximity of stock-based awards granted from July 20, 2021 to the IPO, the Company established the fair value of a share of the Company’s common stock applicable to stock options and RSUs granted from July 20, 2021 onward using a straight-line interpolation from the July 20, 2021 fair value estimated using an independent appraisal to the midpoint of the initial price range in order to calculate unrecognized stock-based compensation expense. The grant-date fair value of stock options granted after the IPO is measured using the Black-Scholes option pricing model described above. The grant-date fair value of RSUs granted after the IPO is equal to the closing trading price of the Company‘s common stock on the grant date. Employee Stock Purchase Plan In November 2021, the Company adopted the 2021 Employee Stock Purchase Plan (“ESPP”). The ESPP is designed to allow eligible employees to purchase shares of Class A common stock at a 15 % discount, generally at intervals of approximately six months, with their accumulated payroll deductions. The number of shares of Class A common stock authorized for sale under 94 RIVIAN AUTOMOTIVE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS the ESPP is equal to the sum of (i) 22 million shares of Class A common stock and (ii) an annual increase on the first day of each year beginning on January 1, 2022 and ending on January 1, 2031, equal to the lesser of (A) 1 % of the aggregate number of shares of all classes of common stock outstanding on the last day of the immediately preceding year and (B) such smaller number of shares of Class A common stock as determined by the board of directors; provided, however, that no more than 185 million shares of Class A common stock may be issued under the ESPP. As of December 31, 2021, 22 million shares were reserved for issuance under the ESPP. As of December 31, 2021, the Company’s unrecognized stock-based compensation expense for the first offering period of the ESPP was approximately $ 46 million. 10. RELATED PARTY TRANSACTIONS Stock Warrants During the year ended December 31, 2019, the Company entered into an agreement with Amazon (Amazon.com, Inc. and its affiliates referred to as “Amazon”) to develop, manufacture, and supply customized EVs. In connection with this agreement, the Company provided a share-based sales incentive to Amazon in the form of warrants to purchase preferred stock. In November 2021, upon the close of the IPO, the outstanding warrants for the purchase of preferred stock converted to warrants to purchase an equivalent number of shares of Class A common stock. The grant-date fair value of the warrants is not material and will be amortized as an offset against revenues in future periods; the offset against revenues for the year ended December 31, 2021 was not material. 2021 Convertible Notes In July 2021, the Company issued the 2021 Convertible Notes to existing investors of the Company, including the following principal owners: Amazon with $ 490 million principal amount, Ford Motor Company (“Ford”) with $ 415 million principal amount, and certain funds and accounts advised by T. Rowe Price Associates, Inc. (“T. Rowe Price”) with an aggregate $ 400 million principal amount. Upon the Company’s IPO, the 2021 Convertible Notes converted into 38 million shares of Class A common stock at a conversion price equal to $ 66.30 per share (refer to Note 6 "Debt" for more information about the 2021 Convertible Notes). 2026 Notes In October 2021, the Company issued the 2026 Notes to new and existing investors of the Company, including T. Rowe Price with an aggregate $ 285 million principal amount (refer to Note 6 "Debt" for more information about the 2026 Notes). Operating Expenses The Company obtains prototyping, engineering, and other R&D services from Troy Design and Manufacturing Co., a wholly-owned subsidiary of Ford. The Company recognized $ 8 million, $ 66 million and $ 71 million of expense for these services during the years ended December 31, 2019, 2020 and 2021, within “Research and development” in the Consolidated Statements of Operations . As of December 31, 2020 and 2021, respectively, unpaid amounts of $ 27 million and $ 16 million related to these services are reported within “Accrued liabilities” on the Consolidated Balance Sheets . The Company obtains hosting services from Amazon. During the years ended December 31, 2019, 2020 and 2021, expenses related to these services of $ 0 , $ 6 million, and $ 30 million, respectively, were recorded in “Research and development” and “Selling, general, and administrative” in the Consolidated Statements of Operations . As of December 31, 2020 and 2021, the unpaid amounts related to these services are not material . 11. CONTINGENTLY REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ (DEFICIT) EQUITY During the year ended December 31, 2019, the Company authorized a fifty -for-one stock split by issuing fifty shares for each one share held. All share information within the consolidated financial statements has been retroactively adjusted to reflect the stock split. 95 RIVIAN AUTOMOTIVE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Initial Public Offering In November 2021, the Company completed its IPO of approximately 176 million shares of Class A common stock at a public offering price of $ 78.00 per share, which included the exercise in full by the underwriters of their option to purchase from the Company an additional 23 million shares of the Company’s Class A common stock. The net proceeds to the Company from the IPO, after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company, were $ 13,530 million. Upon the close of the IPO, (i) 102 million shares of common stock outstanding converted into an equal number of shares of Class A common stock, (ii) 8 million shares of Class A common stock held by an affiliate of the Company’s CEO were exchanged for an equivalent number of shares of Class B common stock, (iii) all outstanding shares of contingently redeemable convertible preferred stock converted into an aggregate 576 million shares of Class A common stock, (iv) a warrant outstanding for the purchase of 4 million shares of Series C preferred stock, with an exercise price of $ 9.09 per share, converted to a warrant to purchase an equivalent number of shares of Class A common stock, (v) outstanding warrants to purchase fewer than 1 million shares of Class A common stock, with a weighted-average exercise price of $ 5.66 per share, terminated unexercised, and (vi) the 2021 Convertible Notes converted into 38 million shares of Class A common stock at a conversion price equal to $ 66.30 per share. The Company also amended and restated its certificate of incorporation to (i) authorize the issuance of 3,500 million shares of Class A common stock and 8 million shares of Class B common stock and (ii) authorize the issuance of 10 million shares of preferred stock. Common Stock The Company has two classes of common stock: Class A common stock and Class B common stock. Shares of Class A common stock and Class B common stock are identical, except with respect to voting and conversion rights. As of December 31, 2021, 892 million shares of Class A common stock and 8 million shares of Class B common stock were issued and outstanding. As of December 31, 2021, 3,500 million shares of Class A common stock and 8 million shares of Class B common stock were authorized. Each share of Class A common stock entitles the holder to one vote, and each share of Class B common stock entitles the holder to ten votes. Holders of Class A common stock and Class B common stock have the right to receive any dividend declared by the Company , subject to the payment of dividends on shares of preferred stock (as described below). After the payment in full of all liquidation amounts required to be paid to the holders preferred stock, holders of common stock also have the right to receive the remaining property of the Company upon the liquidation, dissolution, or winding up of the Company on a pari passu basis among all holders of common stock. At the option of the holder, shares of Class B common stock are convertible anytime into an equal number of shares of Class A common stock. Each outstanding share of Class B common stock will automatically convert into one share of Class A common stock upon the earliest to occur of (a) the five-year anniversary the Company ’s IPO , (b) the date fixed by the Board of Directors within six months of the death or disability of the Company ’s CEO , and (c) the date fixed by the Board of Directors within six months of the date that the number of outstanding shares of Class B common stock held by the Company ’s CEO repre sents less than 30 % of th e shares of Class B common stock outstanding. Any shares of Class B common stock that are no longer owned by the Company ’s CEO or their affiliates will automatically convert into an equal of shares of Class A common stock upon transfer of ownership. Contingently Redeemable Convertible Preferred Stock Each share of preferred stock outstanding prior to the IPO entitled the holder to the number of votes equal to the number of whole shares of common stock into which the share of preferred stock was convertible. Except as provided by law or by the other provisions of the Company ’s Certificate of Incorporation, the holders of preferred stock voted together with the holders of common stock as a single class and on an “as-converted to common stock” basis. The holders of preferred stock also had voting rights separate and apart from the holders of common stock, on a single-class and single-series basis, as set forth in the Company ’s Certificate of Incorporation. Each holder of preferred stock had the right to receive dividends on a single-series basis, in addition to the right to receive dividends on a pari passu basis with holders of common stock, according to the number of shares of common stock held on an “as-converted to common stock” basis. Dividends were non-cumulative and were payable at a per-annum rate of eight percent of the Original Issue Price (as defined in the Company ’s Certificate of Incorporatio n). As of December 31, 2021, no dividends had been declared or distributed. 96 RIVIAN AUTOMOTIVE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In the event of any voluntary or involuntary liquidation, dissolution, or winding up of the Company , the holders of preferred stock were entitled, on a pari passu basis, to be paid out of the assets of the Company available for distribution to its stockholders. In the case of a Deemed Liquidation Event (as defined in the Company ’s Certificate of Incorporation), the holders of preferred stock were entitled, on a pari passu basis, to be paid out of the consideration payable to stockholders in a Deemed Liquidation Event or out of available proceeds, as applicable, based upon the greater of (i) the Original Issue Price plus declared but unpaid dividends and (ii) the amount which would be payable on an “if converted to common stock” basis, before any payment would have been made to the holders of common stock. Each share of preferred stock was convertible into one share of common stock anytime at the option of the holder, or automatically upon a Qualified IPO (as defined in the Company ’s Certificate of Incorporation). The conversion rate was subject to adjustment upon issuance or sale (or deemed issuance or sale) of common stock for a consideration per share less than the conversion price in effect immediately prior to the issuance or sale. Since the preferred stock was contingently redeemable upon a Deemed Liquidation Event, it was classified as mezzanine equity of $ 5,244 million as of December 31, 2020. During the year ended December 31, 2021 , approximately 72 million shares of Series F contingently redeemable convertible preferred stock were issued. Contingently redeemable convertible preferred stock consisted of the following shares as of December 31, 2020 (in millions) ): Contingently Redeemable Convertible Preferred Stock Shares Authorized Shares Outstanding Carrying and Liquidation Value Series A 118 118 $ 600 Series B 66 66 500 Series C 42 39 350 Series D 121 121 1,297 Series E 161 161 2,497 Total 508 504 $ 5,244 Preferred Stock No shares of preferred stock are outstanding as of December 31, 2021. As of December 31, 2021, 10 million shares of preferred stock were authorized. Stock Warrants The following table summarizes the changes in the Company’s outstanding warrants to purchase common stock: Weighted Weighted Average Average Remaining Shares Exercise Contractual Common Stock Warrants (in millions) Price Term Outstanding at December 31, 2020 8 $ 6.00 7.6 Granted — — Transferred from preferred stock warrant 4 9.09 Exercised — — Cancelled, forfeited or expired — 5.66 Outstanding at December 31, 2021 12 $ 6.84 7.0 Exercisable at December 31, 2021 12 $ 6.84 7.0 The weighted average grant date fair value of common stock warrants granted during the years ended December 31, 2019 and 2020 was $ 2.30 and $ 4.30 , respectively. 97 RIVIAN AUTOMOTIVE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table summarizes the changes in the Company’s outstanding warrants to purchase preferred stock: Weighted Average Shares Exercise Preferred Stock Warrants (in millions) Price Outstanding at December 31, 2020 4 $ 9.09 Granted — — Exercised — — Cancelled, forfeited, expired, or converted ( 4 ) ( 9.09 ) Outstanding at December 31, 2021 — $ — Exercisable at December 31, 2021 — $ — Fair Value Assumptions The Company estimates the fair value of each stock warrant using a Black-Scholes warrant pricing model. Expected volatility is based on historical volatility rates of peer companies. The dividend yield is estimated based on the rate at which the Company expects to provide dividends. The risk-free rate is based on the United States Treasury yield curve for Treasury Separate Trading of Registered Interest and Principal of Securities (“STRIPS") with maturities approximating each grant’s contractual life. The weighted-average assumptions used in the Black-Scholes model for warrants granted during the years ended December 31, 2019 and 2020 are as follows: Years Ended December 31, 2019 2020 Volatility 44.4 % 54.7 % Dividend yield — % — % Risk-free rate 1.9 % 0.7 % Contractual term (in years) 10.0 10.0 12. COMMITMENTS AND CONTINGENCIES Legal Proceedings Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties, and other sources are recorded when it is probable that a liability has been incurred and the related amount can be reasonably estimated. If an amount within the range of loss appears at the time to be a better estimate than any other amount within the range, the liability is recorded at that amount. When no amount within the range is a better estimate than any other amount, however; the liability is recorded at the minimum amount in the range. If a loss is reasonably possible and the amount of the loss or range of loss cannot be reasonably estimated, the Company discloses the nature of the possible loss and states that such an estimate cannot be made . Legal costs related to contingencies are recognized as expenses as they are incurred. The Company is involved in legal proceedings and while it is not possible to predict the outcome of these matters with certainty, the Company has developed an initial estimate of the range of outcomes related to unsettled obligations, primarily related to some supplier contract terminations, ranging from $ 16 million to $ 20 million. As of December 31, 2020 and 2021, the Company recorded an estimated liability for unsettled obligations of $ 21 million and $ 17 million, respectively, within “Accrued liabilities” on the Consolidated Balance Sheets . The majority of the matters for which an estimated obligation has been recorded are expected to be settled during the year ended December 31, 2022. 98 RIVIAN AUTOMOTIVE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Unconditional Purchase Obligations During the year ended December 31, 2021, the Company entered into unrecognized commitments that require the future purchase of goods or services (“unconditional purchase obligations”). The Company’s unconditional purchase obligations primarily relate to near-term inventory purchase requirements and vary by vendor and payments for hosting services from Amazon (refer to Note 10 "Related Party Transactions" for further information). As of December 31, 2021, the Company was obligated to make inventory purchases of approximately $ 63 million during the next year. Future payments under unconditional purchase obligations having a remaining term in excess of one year as of December 31, 2021 are as follows (in millions): Future Payments 2022 $ 31 2023 19 2024 and thereafter 8 Total $ 58 13. NET LOSS PER SHARE The Company's basic net loss per share is calculated by dividing net loss by the weighted-average number of shares of common stock outstanding for the period, after allocating losses to equity awards deemed to be participating securities pursuant to the two-class method. Upon completion of the IPO during November 2021, all outstanding shares of common stock and contingently redeemable convertible preferred stock automatically converted into an equal number of shares of Class A common stock, and approximately 8 million shares of Class A common stock were exchanged for an equivalent number of shares of Class B common stock. Except with respect to voting, the rights, including liquidation and dividend rights, of the holders of Class A and Class B common stock are identical (see Note 11 "Contingently Redeemable Convertible Preferred Stock and Stockholders' (Deficit) Equity" ). Accordingly, the undistributed earnings are allocated on a proportionate basis and as a result, net loss per share attributable to common stockholders is the same for Class A and Class B common stock, whether on an individual or combined basis. Prior to the IPO, the Company considered shares of contingently redeemable convertible preferred stock to be participating securities because they participated in any dividends declared on the Company's common stock on an “if-converted to common stock” basis. Holders of contingently redeemable convertible preferred stock did not participate in the net loss per share with common stockholders, as they did not have a contractual obligation to share in the Company's losses. Diluted net loss per share is computed by giving effect to all potential shares of common stock, to the extent dilutive, including stock options, unvested RSUs, and stock warrants. Potential shares of common stock are excluded from the computation of diluted net loss per share if their effect would have been anti-dilutive for the periods presented or if the issuance of shares is contingent upon events that did not occur by the end of the period, in the case of stock options with a market condition. The number of potential shares of common stock outstanding at period-end that were excluded from the computation of diluted net loss per share is as follows (in millions): Years Ended December 31, 2019 2020 2021 Stock warrants 11 12 12 Contingently redeemable convertible preferred stock 343 504 — Stock options 36 39 65 Restricted stock units — 12 37 Total 390 567 114 99 RIVIAN AUTOMOTIVE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A reconciliation of the numerator and denominator in the calculation of basic and diluted net loss per share is as follows (in millions, except per share data): Years Ended December 31, 2019 2020 2021 Numerator Net loss attributable to Rivian $ ( 426 ) $ ( 1,018 ) $ ( 4,688 ) Less: Premium on repurchase of convertible preferred stock — ( 1 ) — Net loss attributable to common stockholders, basic and diluted $ ( 426 ) $ ( 1,019 ) $ ( 4,688 ) Denominator Weighted-average common shares outstanding - basic 98 101 204 Effect of dilutive securities — — — Weighted-average common shares outstanding - diluted 98 101 204 Net loss per share attributable to common stockholders, basic and diluted $ ( 4.35 ) $ ( 10.09 ) $ ( 22.98 ) 100 RIVIAN AUTOMOTIVE, INC. Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosures None.