Rivian Automotive, Inc. / DE 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of operations should be read together with the consolidated financial statements and related notes included in this Form 10-K. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under Part I, Item 1A. “Risk Factors” or in other parts of this Form 10-K. Our historical results are not necessarily indicative of the results that may be expected for any period in the future. The discussion of our financial condition and results of operations for the year ended December 31, 2020 is included in Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2021. Overview Rivian exists to create products and services that help our planet transition to carbon neutral energy and transportation. Rivian designs, develops, and manufactures category-defining EVs and accessories and sells them directly to customers in the consumer and commercial markets. Rivian complements its vehicles with a full suite of proprietary, value-added services that address the entire lifecycle of the vehicle and deepen its customer relationships. In the consumer market, we launched the R1 platform with our first generation of consumer vehicles: the R1T, a two-row, five-passenger pickup truck, and the R1S, a three-row, seven-passenger SUV. In the commercial market, we launched the RCV platform. Our first vehicle on this platform is our EDV, designed and engineered by Rivian in collaboration with Amazon, our first commercial customer. Amazon has placed an initial order of 100,000 EDVs, subject to modification. During the year ended December 31, 2022, we produced 24,337 vehicles and delivered 20,332 vehicles. Factors Affecting Our Performance The growth and future success of our business depends on many factors. While these factors present significant opportunities for our business, they also pose risks and challenges, including those discussed below and in Part I, Item 1A. “Risk Factors,” that we must successfully address to achieve growth, improve our results of operations, and generate profits. • Ability to Develop and Launch New Offerings. The R1T, R1S, and EDV appear to resonate with customers based on positive responses to vehicles delivered and preorder data. We believe the Rivian brand is becoming established in the most attractive consumer and commercial vehicle market segments. However, our ability to grow revenue and expand margins will also depend on our ability to develop and launch new vehicle platforms and programs. Our future financial performance will also depend on our ability to offer services that deliver an intuitive, seamless, and compelling customer experience. • Ability to Attract New Customers. Our growth will depend in large part on our ability to attract new consumer and commercial customers. We have invested heavily in developing our ecosystem and plan to continue to do so. We are in the very early stages of growth in our existing markets, and we expect to substantially raise brand awareness by connecting directly with our community through engaging content, rich digital experiences, and immersive events. We anticipate that these activities will lead to additional preorders and deliveries, and, as a result, increase our base of Rivian customers. An inability to attract new customers would substantially impact our ability to grow revenue or improve our financial results. • Ability to Scale our Ecosystem and Brand Experience. Our go-to-market strategy requires us to scale our ecosystem quickly and effectively, including our technology platform and product development and operational infrastructure. Our future success will also depend on our ability to further develop and leverage our proprietary technology platform. Our ability to enhance our product design, engineering, and manufacturing capabilities and expand our production capacity, delivery and service operations, Rivian Adventure Network, charging network, and customer service will be critical for supporting growth. We believe our long-term ability to achieve our financial targets will depend on our ability to cost-effectively scale these elements, while also delivering a unified customer and brand experience consistent with our adventurous brand commitment. 52 RIVIAN AUTOMOTIVE, INC. • Ability to Convert our Customers to Subscribers of our Services. Services are a key part of our growth strategy. We offer a variety of services, including financing and insurance, vehicle maintenance and repair, charging, and FleetOS solutions that we believe will grow our revenue outside of vehicle sales. As we increase our base of Rivian customers and expand our services portfolio, we expect our customers to expand their usage of our service offerings over the full lifecycle of their vehicle ownership. We believe the services portion of our business will have the benefit of creating a higher-margin, recurring revenue stream for each vehicle, therefore improving our margin profile. Our ability to grow revenue and our long-term financial performance will depend in part on our ability to drive adoption of these offerings. • Ability to Invest in our Production and Capabilities. We believe that customer acquisition and retention is contingent on our ability to produce innovative offerings, including vehicles that deliver the broadest combination of performance, utility, and capability, as well as services that enhance the ownership journey through new features, functions, and a best-in-class customer experience. To this end, we intend to continue making investments to drive growth as we scale vehicle production and deliveries, expand our offerings, and strengthen our core capabilities. As we invest in our business for long-term growth, leading to increases in operating expenses as well as capital expenditures, we expect to experience additional losses, which could delay our ability to achieve profitability and positive operating cash flow. Furthermore, we anticipate that these future investments will require significant external debt and/or equity financing. • Ability to Develop and Manage a Resilient Supply Chain. Our ability to manufacture vehicles and develop future solutions is dependent on the continued supply of input materials (e.g., lithium and nickel) and product components (e.g., semiconductors). Any inability or unwillingness of our suppliers to deliver necessary input materials or product components at timing, prices, quality, and volumes that are acceptable to us could have a material impact on our business, prospects, financial condition, results of operations, and cash flows. Fluctuations in the cost of input materials or product components and supply interruptions or shortages could materially impact our business. We have experienced and may continue to experience cost fluctuations and disruptions in supply of input materials and product components that could impact our financial performance. For example, the global semiconductor supply shortage has had, and is continuing to have, wide-ranging effects across the automotive industry, and has impacted our operations and financial performance, along with those of many automotive suppliers and manufacturers that incorporate semiconductors into their products. In addition, over the prior year there have been sizable increases in the cost of key metals, including lithium, nickel, aluminum, and cobalt. These prices have declined from peak levels but are expected to remain volatile for the foreseeable future. We have also experienced a need for expedited freight associated with supply chain challenges, resulting in higher logistics costs. Given the current supply chain environment, we believe our production ramp and rate in our Normal Factory will be limited by supply chain factors in the near-future. We also must manage the risk of field service actions, including product recalls, with respect to components from suppliers. We continue to work diligently and collaboratively with suppliers to identify and proactively address problems or constraints as quickly as possible. • Ability to Grow in New Geographies. We plan to invest in international operations and grow our business outside of our existing operations. We believe we are well-positioned for international expansion in light of healthy global demand for EVs and for the vehicle segments in which we currently or expect to operate. Other factors that we believe will aid our successful international growth include: the highly flexible, modular nature of our platforms, which we anticipate will provide us the ability to introduce new vehicle programs and configurations; our digital-first approach, which we anticipate will allow us to expand quickly and without a significant physical retail footprint; and our product development expertise, which we anticipate will enable us to offer significant customization for diverse international markets and demographics. Our international expansion has significant associated investment requirements, such as capital spending related to infrastructure, including additional manufacturing capacity, delivery, and service operations, charging networks, and personnel. International expansion is also subject to a variety of risks, including local competition, multilingual customer support and servicing, delivery logistics, and compliance with foreign laws and regulations related to vehicle sales, data privacy, financing, taxes, labor and employment, and foreign exchange. • Ability to Maintain Our Culture, Attract and Retain Talent, and Scale Our Team. We believe our culture has been a key contributor to the positive response from our customers, and our mission promotes a sense of greater purpose and fulfillment in our employees. We have invested in building a strong culture and believe it is one of our most important and sustainable sources of competitive advantage. Any failure to preserve our culture could negatively 53 RIVIAN AUTOMOTIVE, INC. affect our ability to retain and recruit personnel, which is critical to our growth, and to effectively pursue our objectives. If we are unable to retain or hire key personnel, our business and competitive position may be harmed resulting in an adverse impact to our prospects, financial condition, results of operations, and cash flows. • Seasonality. Historically, the automotive industry has experienced higher revenue in the spring and summer months. Additionally, we expect volumes of commercial vehicle sales to be less in the winter months, as customers shift their focus to making last mile deliveries during holidays, rather than incorporating more vehicles into their fleet. We do not expect such seasonality in demand to significantly impact our operations in the near-term as we scale our business due to our backlog of preorders; however, we may experience seasonal variations in our business in the long-term. • Inflation. The United States economy has experienced various disruptions, including supply chain shortages. These disruptions, as well as the ongoing military conflict between Russia and the Ukraine, have contributed to increased inflation. The cost of input materials (e.g., lithium and nickel) and product components (e.g., semiconductors) required to produce our vehicles has risen considerably over the past year. If we are unable to fully offset higher costs through price increases or other measures, especially in the near-term as we continue to work through the backlog of preorders, we could experience an adverse impact to our business, prospects, financial condition, results of operations, and cash flows. Components of Operating Results We expect to incur significant operating costs and expenses that will impact our future profitability, including research and development (“R&D”) expenses as we develop and introduce new vehicles and services and improve our existing vehicles and services, capital expenditures in the expansion of our manufacturing footprint and operations, additional operating costs and expenses for production ramp-up, raw material procurement costs, servicing, and warranty costs as we expand our deliveries, general and administrative expenses as we scale our operations, and selling and distribution expenses as we market our vehicles and services. Our ability to become profitable in the future will depend on our ability not only to successfully market and sell our vehicles and services at prices we establish, but also to appropriately control costs and realize economies of scale. Revenues and Cost of revenues Vehicle production and deliveries began in September 2021. The majority of our revenues is derived from sales of consumer and commercial vehicles. The majority of our costs of revenues is driven by direct parts, material and labor costs, manufacturing overhead (e.g., depreciation of machinery and tooling), shipping and logistics costs, and reserves including for estimated warranty costs related to the production of consumer and commercial vehicles, adjustments to write down the carrying value of inventory when it exceeds its estimated net realizable value (“NRV”), losses on firm purchase commitments, and to adjust for excess and obsolete inventory based upon expectations of forecasted demand. Additionally, we started recognizing recurring non-cash stock compensation charges in the quarter ended December 31, 2021 in connection with the performance-based vesting condition of RSUs and stock options being met upon the IPO. Operating expenses Research and development Our R&D cost consists primarily of expenses incurred for the development of our vehicles and related technologies. These expenses include: • personnel expenses for teams in engineering and research; • prototyping expenses; • consulting and contractor expenses; • depreciation expenses; and • allocation of indirect expenses. Additionally, we started recognizing recurring non-cash stock compensation charges in the quarter ended December 31, 2021 in connection with the performance-based vesting condition of RSUs and stock options being met upon the IPO. 54 RIVIAN AUTOMOTIVE, INC. Selling, general, and administrative Selling, general, and administrative (“SG&A”) expenses consist primarily of personnel costs for employees in our sales, service, facilities, corporate, executive, finance, and other administrative functions, as well as outside professional services, including legal, accounting, and audit services. Personnel costs consist of salaries and wages, benefits, and employment taxes. Additionally, we started recognizing recurring non-cash stock compensation charges in the quarter ended December 31, 2021 in connection with the performance-based vesting condition of RSUs and stock options being met upon the IPO. SG&A expenses also include allocated facilities expenses such as rent and depreciation, and other general corporate expenses such as travel and recruiting expenses. Other expenses Other expenses consist of charitable contributions to Forever by Rivian. Other income (expense), net Other income (expense), net consists primarily of non-operating expenses and income such as interest expense, amortization of debt discounts and issuance costs, and other gains or losses associated with our debt financing arrangements, as well as interest income earned on investments. Provision for income taxes Our provision for income taxes consists primarily of income taxes related to foreign jurisdictions in which we do business. We maintain a full valuation allowance on our United States federal and state deferred tax assets as we have concluded that it is more likely than not that the deferred assets will not be utilized. Results of Operations The following tables set forth our consolidated results of operations for the periods presented (in millions). Years Ended December 31, 2020 2021 2022 Revenues $ — $ 55 $ 1,658 Cost of revenues — 520 4,781 Gross profit — (465) (3,123) Operating expenses Research and development $ 766 $ 1,850 $ 1,944 Selling, general, and administrative 255 1,242 1,789 Other expenses — 663 — Total operating expenses 1,021 3,755 3,733 Loss from operations (1,021) (4,220) (6,856) Interest income 10 3 193 Interest expense (8) (29) (103) Loss on convertible notes, net — (441) — Other income (expense), net 1 (1) 18 Loss before income taxes (1,018) (4,688) (6,748) Provision for income taxes — — (4) Net loss $ (1,018) $ (4,688) $ (6,752) 55 RIVIAN AUTOMOTIVE, INC. Comparison of the years ended December 31, 2021 and 2022 Revenues Years Ended December 31, 2021 vs 2022 Change (in millions) 2021 2022 $ % Revenues $ 55 $ 1,658 $ 1,603 nm *nm-not meaningful Revenues increased for the year ended December 31, 2022, compared to the year ended December 31, 2021 primarily due to increased deliveries of 19,412 vehicles. Cost of revenues and Gross profit Years Ended December 31, 2021 vs 2022 Change (in millions) 2021 2022 $ % Cost of revenues $ 520 $ 4,781 $ 4,261 819 % Gross profit $ (465) $ (3,123) $ (2,658) (572) % For the year ended December 31, 2022, we incurred cost of revenues of $4,781 million, including $475 million of depreciation and amortization expense. Cost of revenues increased compared to the year ended December 31, 2021 as a result of the increased production and delivery of 23,322 and 19,412 vehicles, respectively. Additionally, we had a $920 million charge to reflect the lower of cost or net realizable value (“LCNRV”) of inventory and losses on firm purchase commitments as of December 31, 2022 compared to a $95 million as of December 31, 2021 for an increase of $825 million, increased depreciation and amortization expense by $371 million, and increased stock-based compensation expense by $44 million. We expect to continue to incur LCNRV charges and losses on firm purchase commitments in the near-term but anticipate that the total charge associated with our Normal Factory will decline over the course of 2023 and 2024 as we lower material, production, logistics, and other costs and increase production volumes. The increase in LCNRV charges and losses on firm purchase commitments compared to the previous period is primarily due to an increase in overall inventory and firm purchase commitment values as production ramps, which were adjusted to reflect the amount we anticipate receiving upon vehicle sale (after considering future costs necessary to ready the inventory for sale). There have been sizable increases in the cost of various inputs to manufacture our products over the past year, due to inflationary pressures and supply chain disruptions, impacting items such as the cost of input materials (e.g., lithium and nickel) and components (e.g., semiconductors). We have also incurred higher indirect costs, such as elevated levels of expedited freight and short-term premiums on materials, to compensate for certain supply chain challenges which we expect will continue in the near-term. In addition, our total cost of goods sold was negatively impacted by the ramping of our second manufacturing shift. Negative gross profit increased for the year ended December 31, 2022, compared to the year ended December 31, 2021 primarily due to the items noted above. As we produce vehicles at low volumes on production lines designed for higher volumes, we have experienced, and will continue to experience, negative gross profit driven by labor, depreciation, and overhead costs. The pressure on gross profit from limited volumes will continue in the near-term, but we expect it will improve on a per-vehicle basis as we implement new in-vehicle technologies, achieve commercial cost savings on material costs, and ramp our overall production levels. Research and development Years Ended December 31, 2021 vs 2022 Change (in millions) 2021 2022 $ % Research and development $ 1,850 $ 1,944 $ 94 5 % For the year ended December 31, 2022, we incurred R&D expenses of $1,944 million, including $95 million of depreciation and amortization expense. R&D expenses increased compared to the year ended December 31, 2021 primarily due to a $228 56 RIVIAN AUTOMOTIVE, INC. million increase in payroll and related expenses, a $160 million increase in stock-based compensation expense, a $43 million increase in depreciation and amortization, and a $33 million increase in software expenses partially offset by a $362 million decrease in engineering, design, and development costs. The primary drivers for these higher expenses were higher headcount and personnel costs related to investing in our R1 and RCV programs as well as investments related to other advanced product development activities, including early development of our R2 platform, future propulsion platforms, and our updated vehicle network architecture. The decrease in engineering, design, and development costs were related to higher product development activities in the lead up to our start of production for the R1 and RCV platforms in the prior period. We plan to continue investing in future vehicle platforms and new in-vehicle technologies as well as furthering vertical integration of manufacturing. Selling, general, and administrative Years Ended December 31, 2021 vs 2022 Change (in millions) 2021 2022 $ % Selling, general, and administrative $ 1,242 $ 1,789 $ 547 44 % For the year ended December 31, 2022, we incurred SG&A expenses of $1,789 million, including $82 million of depreciation and amortization expense. SG&A expenses increased compared to the year ended December 31, 2021 primarily due to a $213 million increase in stock-based compensation expense and a $208 million increase in payroll and related expenses. The primary drivers for these higher expenses were scaling our corporate functions and commercial operations, including customer-facing facilities to support our current and future business growth. These expenses include higher headcount and personnel costs. We also plan to make corresponding investments in our facilities, commercial operations, and technology for our future operations. Other expenses Years Ended December 31, 2021 vs 2022 Change (in millions) 2021 2022 $ % Other expenses $ 663 $ — $ (663) (100) % Other expenses decreased for the year ended December 31, 2022 compared to the year ended December 31, 2021 as a result of the Company’s donation of approximately 8 million shares of Class A common stock and $20 million in cash to Forever by Rivian in 2021. With this sizable initial funding, we have no near-term plans to provide additional direct funding to Forever by Rivian in the future. Other income (expense), net Years Ended December 31, 2021 vs 2022 Change (in millions) 2021 2022 $ % Interest income $ 3 $ 193 $ 190 nm Interest expense $ (29) $ (103) $ (74) (255) % Loss on convertible notes, net $ (441) $ — $ 441 100 % Other (expense) income, net $ (1) $ 18 $ 19 nm *nm-not meaningful 57 RIVIAN AUTOMOTIVE, INC. Interest income increased for the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily due to higher interest rates and higher average balances of cash and cash equivalents. Interest expense increased for the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily due to higher average debt balances and interest rates resulting from the 2026 Notes. See Note 7 “Debt” to our consolidated financial statements included in this Form 10-K for more information on the 2026 Notes. We expect interest expense to increase in the near term, reflecting changes in the interest rate environment. Loss on convertible notes, net decreased for the year ended December 31, 2022 compared to the year ended December 31, 2021 as a result of the issuance and subsequent mark-to-market valuation of the unsecured senior convertible promissory notes due July 2026 (“2021 Convertible Notes”) in 2021. See Note 7 “Debt” to our consolidated financial statements included in this Form 10-K for more information on the 2021 Convertible Notes. Provision for income taxes As of December 31, 2021 and 2022, the majority of our deferred tax assets were comprised of net operating losses generated primarily in the United States and tax credit carryforwards, and for all periods, these assets were fully offset by a valuation allowance. Liquidity and Capital Resources Our operations have been financed primarily through net proceeds from the sale of securities, including in our IPO, and from borrowings. The following table summarizes our liquidity (in billions): December 31, 2021 December 31, 2022 Cash and cash equivalents $ 18.1 $ 11.6 Availability under ABL Facility 0.3 0.3 Total liquidity $ 18.4 $ 11.9 In May 2021, we entered into the ABL Facility, which will mature on May 20, 2025. As of December 31, 2022, we had $0.3 billion of unused committed amounts under the ABL Facility. The ABL Facility contains certain affirmative and negative covenants, including a minimum liquidity covenant requiring us to maintain no less than $1.0 billion of liquidity, which will fall away upon meeting a fixed charge coverage ratio of greater than 1.0 for two consecutive quarters, and conditions to borrowing or taking other actions that restrict certain of our 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. As of December 31, 2022, we were in compliance with the covenants and conditions of the ABL Facility. See Note 7 “Debt” to our consolidated financial statements included in this Form 10-K for more information regarding the ABL Facility. In October 2021, we issued $1.25 billion aggregate principal amount of 2026 Notes. The 2026 Notes have a maturity of five years from the date of their original issuance. The 2026 Notes require certain of our subsidiaries to comply with a number of customary covenants (including restrictions on incurrence of indebtedness, liens, the making of restricted payments, and dispositions), in each case substantially similar to the corresponding covenants under the ABL Facility as described above. In addition, the 2026 Notes contain the same minimum liquidity covenant (but no other financial covenants) as the ABL Facility described above. See Note 7 “Debt” to our consolidated financial statements included in this Form 10-K for more information regarding the 2026 Notes. In November 2021, we completed our 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 from approximately 23 million additional shares of Class A common stock. The net proceeds to us from the IPO were $13.5 billion. See Note 12 “Stockholders' Equity” to our consolidated financial statements included in this Form 10-K for more information regarding the IPO. We have generated significant losses from operations, as reflected in our accumulated deficit of $6.4 billion and $13.1 billion as of December 31, 2021 and 2022, respectively. Additionally, we have generated significant negative cash flows from operations and investing activities as we continue to support the growth of our business. We anticipate continuing to make 58 RIVIAN AUTOMOTIVE, INC. significant capital investments over the next several years to focus on ramping up production as we strategically expand infrastructure, including additional manufacturing capacity both domestically and internationally. We also anticipate continuing to make significant investments in future growth objectives, including vehicle and other technology and software, tooling for current vehicle platforms, future vehicle manufacturing lines, battery technology and supply, and our service network. As of December 31, 2021 and 2022, our non-cancellable commitments as disclosed in Note 6 "Leases" , Note 7 “Debt” , and Note 13 "Commitments and Contingencies" to our consolidated financial statements included in this Form 10-K, do not include any commitments related to these ongoing investments as we do not have any related material commitments that we cannot cancel without a significant penalty. In addition to our capital expenditures, we expect our operating expenses to increase as we ramp vehicle production and continue to invest in R&D activities and our commercial infrastructure in support of our growing customer base. We believe our existing balance of cash and cash equivalents, in addition to amounts available for borrowing under the ABL Facility, will be sufficient to meet our operating expenses, working capital, and capital expenditure needs for at least the next 12 months. Our future operating losses and capital requirements may vary materially from those currently planned and will depend on many factors, including our rate of revenue growth, the timing and extent of spending on R&D efforts and other growth initiatives, the timing, nature, and rate of expansion of manufacturing activities, the timing of new products and services, market acceptance of our offerings, and overall economic conditions. Furthermore, we anticipate that future investments will require significant debt and/or equity financing. The sale of additional equity would result in dilution to our stockholders. The incurrence of additional debt would result in debt service obligations, and the instruments governing such debt could provide for operational and financial covenants that restrict our operations. There can be no assurances that we will be able to raise additional capital on favorable terms or at all. The inability to raise capital would adversely affect our ability to achieve our business objectives. Cash Flows Years Ended December 31, (in millions) 2020 2021 2022 Net cash used in operating activities (848) (2,622) (5,052) Net cash used in investing activities (914) (1,794) (1,369) Net cash provided by financing activities 2,500 19,828 99 Operating Activities Net cash used in operating activities increased during the year ended December 31, 2022 compared to the year ended December 31, 2021. This increase was primarily driven by higher cash outlays to support overall growth of the business, especially the manufacturing and sale of our products from our Normal Factory and building up inventory to support our increasing production levels. Investing Activities Net cash used in investing activities decreased during the year ended December 31, 2022 compared to the year ended December 31, 2021, primarily due to higher capital expenditures related to the build-out of our manufacturing capabilities at our Normal Factory in the prior year. We continued to invest in the growth of our business at our Normal Factory, our next generation vehicle platforms and technologies, along with our service centers in the current year. Financing Activities Net cash provided by financing activities during the year ended December 31, 2021 was primarily driven by $13.5 billion in net proceeds from our IPO, $2.7 billion in proceeds from the issuance of shares of Series F contingently redeemable convertible preferred stock, $2.5 billion in proceeds from the issuance of the 2021 Convertible Notes, and $1.2 billion in net 59 RIVIAN AUTOMOTIVE, INC. proceeds from the issuance of the 2026 Notes. We had no material financing activities during the year ended December 31, 2022. Critical Accounting Policies and Estimates The preparation of our financial statements and related disclosures in conformity with U.S. GAAP and the discussion and analysis of our financial condition and operating results require us to make judgments, assumptions, and estimates that affect the amounts reported. We base these estimates on historical experience and on various other assumptions we believe are appropriate and reasonable under the circumstances and apply judgement to possible outcomes as the basis for amounts reported. Because of the inherent uncertainties involved in making such estimates, actual results may differ, and such differences may be material. We consider the following policies and estimates critical because they are important to the portrayal of our financial condition and operating results, and they require us to make judgments and estimates about inherently uncertain matters. For further information on all of our significant accounting policies, see Note 2 “Summary of Significant Accounting Policies” to our consolidated financial statements included in this Form 10-K. Inventory Valuation We review our inventory to ensure that its carrying value does not exceed its NRV, with NRV based on the estimated selling price of inventory in the ordinary course of business, less estimated costs of completion, disposal, and transportation. When our expectations indicate that the carrying value of inventory may exceed its NRV, we perform an exercise to calculate the approximate amount by which carrying value is greater than NRV and record additional cost of revenue for the difference. Once a write-off occurs, a new, lower cost basis is established. We also regularly monitor inventory quantities on orders for which we have a firm purchase commitment, consistent with our method for valuing inventory. Should our estimates used in these calculations change in the future, such as estimated selling prices or remaining costs, additional write-downs may occur. The increase in inventory write-downs for the year ended December 31, 2022 compared December 31, 2021 is primarily due to an increase in overall inventory and firm purchase commitment values as production ramps, which were adjusted to reflect the amount we anticipate receiving upon vehicle sale (after considering future costs necessary to ready the inventory for sale). A hypothetical 10% change in estimated selling prices or remaining costs would have resulted in the following approximate changes in the inventory write-down for the year ended December 31, 2022. Decrease in Inventory Write-Down Increase in Inventory Write-Down Change in estimated selling prices $ 115 $ (115) Change in estimated remaining costs $ 144 $ (128) Recent Accounting Pronouncements See Note 3 "New Accounting Standards" to our consolidated financial statements included in this Form 10-K for a description of recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted. Emerging Growth Company Status We ceased to be an “emerging growth company,” as defined in the JOBS Act, as of October 8, 2021 due to our issuance, in a three-year period, of more than $1.0 billion in non-convertible debt securities. As a result, we have not applied the extended transition period for new or revised accounting standards beginning with our consolidated financial statements and related notes for the year ended December 31, 2021.