Rivian Automotive (NASDAQ: RIVN) beat estimates. Revenue rose 38% year-over-year to $2.155 billion, clearing the ~$1.99 billion consensus, and adjusted net loss per share narrowed to $(0.48) from $(0.65). But the headline numbers only tell part of the story.
The real signal is in the product mix. R2, the company's lower-priced SUV, became Rivian's best-selling vehicle by volume in Q3, outselling both the R1 and the EDV commercial van. That shift is reshaping the economics of the business.
Record deliveries of 19,248 units, up 46% year-over-year, drove automotive revenue to $1.55 billion. The average selling price declined as R2 and commercial vans made up a larger share of the mix. That's the trade-off of scaling into a broader market. The offset came from regulatory credits, which contributed $81 million in revenue, up $80 million from a year ago, plus an IEEPA tariff refund receivable that provided a one-time benefit.
The software and services segment continues to be the structural bright spot. Revenue hit $605 million, up 45% year-over-year, with gross profit of $256 million at a 42% margin. The Volkswagen Group joint venture accounted for $354 million, or 59%, of software and services revenue. This is not a one-quarter phenomenon. The JV is providing a recurring, high-margin revenue stream that is increasingly independent of vehicle delivery volumes.
Consolidated gross profit improved $152 million year-over-year to $176 million, though gross margin slipped to 8% from 11% in Q2. The sequential decline is explainable: Rivian recognized approximately $120 million in incremental cost of revenues related to the R2 production ramp. That's the cost of bringing a second shift online in Normal, Illinois. As production normalizes, those costs should compress, and margins should expand.
Operating expenses rose to $1.057 billion from $1.007 billion, driven by higher R&D spend on AI and autonomy initiatives. Adjusted EBITDA improved to $(435) million from $(602) million, a $167 million year-over-year improvement that reflects both revenue growth and cost discipline.
The guidance revision is the most important takeaway. Rivian raised its full-year delivery forecast to 67,000-70,000 units from 65,000-70,000, narrowed adjusted EBITDA guidance to $(1.85)B-$(1.75)B from a prior midpoint of $(1.85)B, and lowered capital expenditure guidance to $1.40B-$1.50B from $1.70B. The $300 million capex reduction at the midpoint is notable. Management attributed it to timing of spend, but it also signals that the R2 ramp is requiring less incremental investment than initially planned. That's a positive for free cash flow trajectory.
Free cash flow in Q3 was $(1.124) billion, wider than the $(421) million a year ago, driven by working capital outflows related to inventory buildup for R2 and a reduction in deferred revenues. The company ended the quarter with $5.502 billion in cash and short-term investments, plus $593 million available under its ABL facility. Pro forma for the $1 billion Volkswagen Group term loan received in October, total available liquidity stands at $7.095 billion.
What to watch next: the autonomy roadmap. Rivian expects a limited rollout of its Point to Point driver-supervision feature later this year, with general release in 2027. The acquisition of Third Dimension AI for simulation capabilities and the Uber robotaxi partnership, which could unlock an additional $250 million in equity investment by year-end, suggest management sees autonomy as the next value driver. The Autonomy and AI Day on December 9 will provide more detail.
For now, the core story is that R2 is scaling faster than expected, and the software business is providing a margin cushion that most auto startups lack.