Q4 2020 Quantumscape Corp Earnings Call
[music].
And welcome to quantum escapes fourth quarter 'twenty 'twenty earnings Conference call. My name is Cheryl and I'll be your conference operator today.
All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.
Thank you John Tinker Quantum's scale head of Investor Relations you May begin your conference.
Thank you operator, good afternoon, and thank you to everyone for joining <unk> fourth quarter 2020 earnings conference call to supplement today's discussion. Please go to our IR website at IR dot quantum scape dot com to view our shareholder letter.
Before we begin I want to call your attention to our safe Harbor provision for forward looking statements that is posted on our website and as part of our quarterly update the safe Harbor provision identifies risk factors that may cause actual results to differ materially from the content of our forward looking statements for the reasons that we cite in our form 10-K and other SEC filings include.
<unk> uncertainties posed by the difficulty in predicting future outcomes, joining us today will be quantum Scapes co founder CEO and chairman Jack Deep thing and our CFO, Kevin Hetrick Jack.
<unk> will provide a strategic update on the business and then Kevin will cover the financial results and our outlook in more detail with that I'd like to turn the call over to Jack keep saying.
Thanks, Sean.
Welcome to our first earnings call as a public company.
Earlier today, we published a letter to our shareholders summarizing the major developments from the last quarter and fiscal year.
If you haven't already read it we encourage you to take a look as our shareholder letter will be the primary way we report our progress to you.
In addition to the SEC Web site you can also find it on our company Investor Relations website, IR Dot quantum's scale Dot com.
I won't repeat all of the contents of the letter here, but I would like to call your attention to a couple of key highlights.
First for.
For those that are new to the quantum scape story some brief background.
We were founded in 2010 out of Stanford with a mission to revolutionize energy storage and enable a sustainable future.
First application we focused on is the transformation of the automotive powertrain.
In electrified version, which we believe represents both a very important part of the solution to the emissions problem as well as the opportunity to create tremendous value over the coming decades.
Overtime, we expect to push into other markets, including stationary storage for the power grid and consumer electronics.
We are a pioneer in the development of a new type of battery the solid state lithium metal battery.
Our technology replaces the polymer separate or used in conventional batteries with a solid state ceramic seven meter, enabling us to replace the carbon or silicon anode using these conventional cells with an annual the pure metallic lithium.
Which in turn allows us to make batteries with higher energy density.
Greater driving range on a single charge.
Faster charge times and improve safety, while offering long cycle life.
We believe these are some of the fundamental issues holding back widespread adoption of battery electric vehicles.
The beauty of our approach as we deliver these benefits not by increasing the complexity of the battery, but by simplifying it eliminating the anode layer of conventional cells.
As a result, we believe the cost of these batteries at scale can actually be less than conventional batteries at the same scale.
Last December at our battery showcase event, we unveiled for the first time the performance data of our single lay ourselves.
Making clear the benefits of this lithium metal approach versus the traditional lithium ion approach.
In particular, we showed data showing the cells were capable of achieving long cycle life now at over 1000 cycles to about 90% of initial capacity.
While operating at near room temperatures of 30 degrees Celsius and high current entities for which a power of <unk>.
In addition, we shared data is showing these cells are capable of fast charge rates of 15 minutes to 80% state of charge.
Excellent performance relative to conventional itself on the most demanding drive cycles, such as those found on race tracks and.
In operation at low temperatures, including cycling data at negative 10 degrees Celsius.
We believe this data marks a new high watermark for the solid state battery industry.
And are unaware of any alternative solid state approach with better performance results.
Having demonstrated this level of performance on our single Theirselves.
<unk> for the coming year.
These laser and make multi lay ourselves forming the basis for our promotional target zone.
We are therefore very pleased to report for the first time that.
We have assembled poorly ourselves and the 30 by 30 millimeter form factor and the T cells have reached close to 800 cycles. So over 90% capacity retention at both <unk> and <unk> of the three rates at 30 degrees Celsius.
Substantially similar to recycling performance, we showed in our single their cells and.
And demonstrating it is possible to stack, our single Theirselves without adversely impacting cycle life and capacity retention of the cells.
We used $30 30 millimeter cells.
Made from separators cut from our standard targeted commercial areas separators.
Because it allowed us to effectively quadruple our current outlook as we work to scale up our engineering line capacity.
While there is still a lot of work to be done and we could encounter new challenges as we increase our layer count. This is an incredibly important results and we are excited to have this so early in the year.
We now need to make these multi layer so using our commercial area 70 by 85 millimeter layers increase the number of layers aiming first before layers and subsequently for eight to 10 layers by year and optimize the manufacturing processes.
And address any new challenges we find.
We believe that if we achieved these milestones we will be on track to achieve our goal of delivering prototypes battery cells to our customers in 2022.
The other thing I'd like to draw your attention to is that based on this recent progress and to help US further scale, we have decided to build our own pre pilot line facility in San Jose, which we call <unk> zero.
Q1 zero is intended to have a continuous flow high automation line capable of building over 100000 engineering cell samples per year and.
And we expect to be producing sales on this line by 2023.
<unk> zero will help provide the additional capacity we need for our development work and will enable us to accelerate work on the next generation of manufacturing tool.
It will also provide capacity to make enough batteries for hundreds of long range battery electric test vehicles per year.
This will allow us to provide early yourself to VW as well as other automotive partners explore nonautomotive applications and help derisk subsequent commercial scale.
With that I'll hand, it over to our CFO, Kevin Hedrick to say a few words about our financial performance and then open it up to Q&A Kevin.
Thanks Jake.
Before I get perspective on our financial outlook for 2021, I'd like to first give a little color on our fourth quarter and full year 2020 results.
In the fourth quarter, our operating expenses were $30 million, excluding stock based compensation operating expenses were $22 million and.
In accordance with U S. GAAP, we were required to take a noncash expense of $665 million relating to warrants and series F preferred stock issued prior to the business combination.
Bringing our GAAP net loss in the fourth quarter to $695 million.
These preferred warrants and series F preferred stock originally classified as liabilities in accordance with U S. GAAP, we're subject to noncash fair value measurement at issuance and at each reporting period.
The final re measurements were done at the close of the business combination as a result, there will be no further remeasurement related to beef.
On a full year basis, our operating expenses were $81 million or $64 million, excluding stock based compensation.
Our GAAP net loss for fiscal year, 2020 was $1 1 billion.
Of this amount 1 billion represents the noncash fair value adjustment of the preferred stock and warrants in accordance with U S. GAAP previously referenced.
With respect to share count I'll be providing numbers rounded to the nearest 0.1 million shares. We ended 2020 with approximately 364.0 million shares of common stock outstanding.
As of December 31, 2020, the company had a total of approximately $466 6 million issued and issuable shares, including those issuable upon exercise of warrants shares issuable upon the Volkswagen second tranche investment and shares issuable to employees and consultants upon the exercise of.
Ending options or vesting of RSC is.
Note that all of the aforementioned shares warrants options and <unk> have been registered on the company's S. Four S one and filings.
With respect to cash we used $37 million of free cash flow in the fourth quarter and $85 million for the full year 2020.
We anticipate free cash flow burn to be in the range of $230 million to $290 million for 2021 of which approximately 40% to 50% of capex, including investments in Q zero.
These investments will support our multilayer work advanced production process maturity, notably to make our solid state separator films and for cell Assembly and support customer engagement.
We expect to use less than $60 million of net cash in 2021, assuming receipt of proceeds from the Volkswagen financing and assuming exercise of public warrants.
This would allow us to enter 2022 with a liquidity position of over $900 million sufficient funding, we believe to fund us through production.
Of course, the pace with which we were able to spend will depend on several factors, including the ability to ramp head count and the maturity of our production processes, including the level of automation.
With nearly $1 billion on the books as of Q4 2020, the strength of our balance sheet. We believe will give us the flexibility we need to execute on our plan through commercialization.
In summary, we're excited with where we are and look forward to the challenge ahead.
We'd like to thank our investors for their support and belief in our mission to help usher in the battery and electric vehicle Revolution.
With that I'll pass it back over to John John.
Thanks, Kevin as a matter of practice going forward, we will begin the Q&A portion by asking our management team a few of the most pertinent questions on the minds of investors for future reference investors can submit questions through our Investor relations Inbox by E mailing IR at <unk> Dot com.
This quarter's most frequently asked questions are as follows.
Petitor progress on announcements it seems like others are going to get to market before quantum scape and have already achieved multi Larry can you talk about your progress as it relates to that of others like Neo Toyota and solid power.
Sure. The key point to note here is that it doesn't help to have a multilayer ourselves. It uses a single layer building blocks that doesn't work.
It will be the equivalent of kind of critical multistory buildings. When you haven't been able to make a single storey building without collapsing on itself.
So we haven't seen any data from any other competitor that has shown a solid state separate are capable of delivering long cycle life. The high current entities without requiring elevated temperatures as a result, the players you just mentioned.
All into one or two categories those that have reverted back to a carbon based anode, which of course resulted in the loss of many of the key benefits of a solid lithium metal architecture, including energy density fast charge and cost.
Those that use lithium metal, but can only work under compromised as conditions that make those cells not commercially viable. We believe we're the only player to have shown a solid lithium metal single air building block capable of meeting the key requirements of long cycle life high carrier density and an elevated temperatures.
So for those who are interested in learning more.
We published a survey of the solid state batteries asset and you can find it on our website at IR that quantum escape dot com.
Okay. Great next can you explain the different timelines between <unk> and <unk> over three charging.
Sure. This is terminology used by the battery industry, and it's simply a way to refer to the rate of charge and discharge.
See that description refers to one charge or discharge and the number refers to how many surcharges of discharges can be performed in one hour. So <unk> means one charge or discharge per hour.
Over three meetings, one third of a charge and discharge and well over one full charge of discharge three hours.
And note that highest rates are more stressful than the battery adversely impacting cyclist. So lithium ion battery cycle of testing is often quoted at silver three rates.
Because the quantum skeptics allergy is robust under high power conditions.
We'll actually be able to run our cycle life tests, and <unk> rates, which allows for faster data collection and shorter development cycle.
I'll point out that with conventional batteries.
To be designed to be energy cells with high energy, but low power for power cells, which have high powered with low energy one of the unique things about the quantum scale technology is this an energy sale when the target.
One hours per liter higher than the cells used in today's <unk> example, which are around 700 or so what hours per liter.
But can still be charged it highlights as shown by our foresee 15 minute charted.
Okay. Great. Our next question is how will future improvements in lithium ion chemistries affect your batteries.
Sure. So most of the improvements in the world of lithium ion stemming from better cathodes are there areas on the capital side, we're completely agnostic.
We're able to take advantage of any improvements on capital technology, including material level improvements such as higher nickel content as well as manufacturing level improvements such as dry electrode processing.
Because these improvements are being driven either by material suppliers, we sell to us or in some cases, the automotive Oems to whom we sell to we.
We believe we will have access to both of these sources severe of those as a competitor.
The animal side.
<unk> are related to adding a certain amount of silicon to the carbon anodes.
Silicon can hold more lithium and carpet however, silicon expands and contracts so much during cycling that adversely impacts the cycle life of B cells. So the amount of silicon using b cells is limited to a fraction of the NOI as a result this approach only provide a small benefit as you can see by.
By contrast, our lithium metal approach eliminates 100% of the carbon or silicon and yellows, resulting in a significant increase in residency.
Thus, we see our solstice lithium metal approach as being able to deliver greater density than conventional rely on even into the future.
Okay and our final question, what makes you feel like Youll have a sustainable cost advantage over the rest of the industry.
So now our architecture, we eliminate the traditional carbon or silicon anode entirely which means we get rid of the anode materials.
Electrode manufacturing line and the anode formation process, which is a multi week long process in which a chemical side reaction is allowed to occur between the carbon particle and liquid electric.
As a result.
Given we believe our scepter will be in the same order of magnitude of cost as conventional separators.
We expect that the quantitative approach what should be lower cost than conventional lithium ion cells at any given manufacturing scale.
Alright. Thank you Jamie we're now ready to begin the Q&A portion of today's call. Operator, Please open the lines for questions.
Thank you if you would like to ask a question at this time. Please press star one on your telephone handset.
Our first question comes from Mark Delaney from Goldman Sachs.
Please go ahead your line is open.
Yes, good afternoon, and thanks very much for taking the questions.
Very happy to.
The company, having its first earnings call I wanted to ask about the pre pilot facility that you announced today and the additional sales just kind of give US a company to work with you do you think that changes your outlook that you articulated in the investor deck in terms of what kind of revenue the company can be generating either in terms of.
And perhaps generating revenue so much sooner than the current 2024 projection or potentially higher in magnitude compared to what you've previously outlined.
Yeah, Hey, Mark this is Jack thanks for the question so.
<unk>.
The <unk> is really designed to produce cells for test vehicles. So we don't expect it's going to have a material impact on revenues.
Directly.
In the sense that it's going to make cells that we will provide to our automotive Oems to make test cars, but it does have an indirect impact in the sense that it.
Increases.
<unk>.
The probability that we can have a successful rollout of <unk> and subsequent manufacturing dose. So that's the way I would think about what kyocera is designed to do.
That's helpful. Thanks, and then in terms of the run rate on operating expenses that the company guided to for <unk>.
Yes.
For this year.
So I think 50% to 60% of the.
The cash outlays that you put in your shareholder letter I think the implied operating expenses.
2021, or a little bit above what.
As implied in the last Investor presentation for 2022 operating expenses. So it seems like perhaps the company is taking up its planned investment levels and I assume that.
Correlating with this zero.
Some of the the ability of the company has to.
Can you do a bit more but I am hoping to better understand to what extent you are in fact.
Taking up your operating expenses compared to the prior plan.
Kevin you want take that one.
Sure Mark as you would have seen from our current run rate. We're spending are we spent $27 2 million in operating activities in Q4, and $10 2 million in Capex and as you correctly noted the guidance was $2 $30 million to $290 million and 21 with about 40% to 50% being allocated towards <unk>.
<unk> zero is.
<unk> is incremental to the plan so there will be the opex portion.
You would expect it to be a little higher leaving 22 and beyond we don't have specific guidance on that number in this call.
Understood and just lastly in terms of some of the operational milestones.
Thank you for the update on the multilayer and that's that's good to learn more about it.
The other area that was discussed by the company was good in terms of getting the yields up on the separator.
Separator manufacturing I don't know if there's anything on that front that you are able to share with us today.
Yes. This is J D.
There is nothing we're sharing today on that but I think the important milestone when he was was up demonstrating that when you take single layer cells and make multi their stacks out of them and mitigates foreign air sacs.
Capacity retention and the cycle life behavior.
Doesn't change materially so that's really what we're excited about and as I pointed out in the opening remarks, obviously there is more work to be done there too.
Scale up production into two had the layers and the actual production size. A 70 day by then to deal with any other unforeseen issues that might arise as we complete that process, but the core.
The core result that the that the the thing.
All of those can be in fact stacked into multi day ourselves.
With data that looks up substantially.
Very similar to what.
Data was that we showed in similar ourselves.
That's very exciting to us and to have that.
This early in the year just moves that we have.
Rest of the year or two to accomplish the rest of those tests that I mentioned in terms of scale.
That's very helpful. Thank you.
Sure great questions.
Thank you and our next question comes from Adam Jonas from Morgan Stanley. Please go ahead. Your line is open.
Thank you Hello, everybody, Hey, Jack deep.
First great disclosure thanks for that.
Couple of questions on <unk> zero.
I think it gives you is due to your point a chance to test prototypes with other.
Non Volkswagen.
Customers and potential customers as well.
I am curious if today you are able to.
Update us on the status of any discussions with with non VW customers as I imagine your IPO.
The lifting of the of the company itself and all the attention around it.
Can create can create a lot of interesting commercial benefits I'm curious I'm curious if that <unk> seen an uptick in those discussions or anything you care to update us at this time and then I have a couple of follow ups.
Hey, Adam Thanks for the question, yes. So.
As you.
Correctly guesstimate the somewhat higher profile that we have now that we're public.
It has clearly resulted in a.
Yeah.
The meaningful number of inbounds.
That we're working through.
We have said before that we've actually had ourselves tested by multiple automotive Oems. So VW, obviously was the only one that we've announced but.
But I think that as you know.
The VW deal as greatest BW had been as a partner that deal is non exclusive. So we are free and we fully intend to work with other Oems in the fullness of time, we're not announcing anything on that front today, obviously, but.
We fully expect to to work with multiple Oems overtime.
And beyond automotive Oems.
The interest from other sector with some of the ones that we mentioned earlier, including the.
<unk> storage for the grid as well as consumer electronics.
Sure.
Right now we are constrained by our ability to produce enough cells to provide customers.
Without the test but.
As we bring Qs zero online are able to produce more cells. That's one of the big benefits of having that production capacity as we will in fact be able to to.
To make this technology available.
What brought it to the customers that have expressed interest.
Thanks, Jack Deepa next question is on the factory location of Q1 and the expansion in Europe.
I think I think most people on this call would expect that it might be in Germany.
I don't know what.
I don't know what we should how.
How youre thinking about that particularly as youre seeing other.
Battery capacity investments being closer to renewables.
Sources of energy Youre, seeing Norway get a lot of it.
I'm curious if again, we're not trying to ask you to break break new news that you didn't put in your letter, but how youre thinking about proximity to Volkswagen versus <unk>.
Our renewable sourced Apple.
<unk> source manufacturing for it what is a very energy intensive process. Thanks.
It's a great question and I think what I can say is that those are exactly the kind of I think kind of issues that we.
We need to balance as we as we make those final siding divisions. So on one hand, there is a trend of industries locate battery manufacturing close to where the vehicle manufacturing isn't exactly the type of Giga factory.
On the other hand, you also need to balance the supply chain aspects of this idea because we're now includes power and also includes our other supply that goes into the back of improved labor.
It's a multi dimensional kind of a problem and I think.
The.
The main takeaway is it.
The facility is likely to be close to where the vehicles are manufactured.
But the question of how close is going to be a function of how those other dynamics come into play.
Okay, and just a final one from me Jack you mentioned other markets.
When I when I hear you talk about the energy density both gravimetric land volumetric Lei.
Of course, there there are direct implications to electric aviation in the EV market and some of the scenarios, we're running at least on.
The size of those markets could be in some cases very very large in some cases, maybe even larger than the automotive market cure.
Curious, what you think about that market potential of EV Tal urban Air mobility is this something that you.
Are you at all.
At a high level or are exploring.
Even though you don't mention it and call it out specifically in your prepared remarks.
Yes, that's a.
Your question about <unk> is definitely a very interesting new emerging area and we are in fact go up.
In discussions with players in that sector, it's a little too early for us to be able to predict just how big that market will be and when it starts taking off but but as you correctly surmised that market is extremely sensitive to two the gravimetric anti density in particular, because that obviously impacts the whole lot.
The whole application pretty significantly and so the energy density benefits that we're offering.
Make it a really compelling.
Fifth port for that application. So I think what it comes down to you at the end as we have in the near term at least in very near term.
Going to be somewhat capacity constraint and what that gives us the luxury of is really being able to pick those markets that have.
The most compelling.
In terms of the overall application the economics for us for our customers and so on.
As we make progress on.
I'll sort of narrowing down some of those near term.
Expansion markets, we'll be sure to communicate them as well.
Thanks Jack.
Absolutely.
Operator, if there is.
Another question.
We can go on please go ahead.
Our next question comes from Ralph <unk> from Wolfe Research. Please go ahead. Your line is open.
Hi, everybody.
Wanted to ask just on the about the gating factors.
Testing and moving to 8% to 10 layers.
Maybe you could just give us a little bit of color on what the incremental challenges are that you'd need to overcome.
Assuming that there is its the volumetric changes that those cells.
Encounter when theyre being planted with lithium and also how many layers do you anticipate in the final commercial form factor.
What are the biggest.
<unk> challenges the detailed become in order to achieve that.
Yeah, Hey, Rod Sandeep so.
The number of layers is a little bit of a.
A variable commodity it depends on which customer and which pack design, which module. While we're talking about so there is no. One number I can give you there well I think if you said theres going to be a few dozen layers in.
Virtually every flavor of sale that we make with different Oems than.
And then you'd be in the right ballpark it doesn't kind of capture that it's going to be.
More than a dozen of less than <unk>.
Less than.
A few hundred trying to somewhere in that range, but a few dozen mid <unk> range.
As far as the main challenges to get there.
To be quite candid the major issue and that issue the millimeter.
No.
That we haven't been very immediate term is just to make more of these materials. So we can make more cells multi there.
What isn't generally appreciate the multi there if you're making multi yourselves you need a lot more there so for their cell phones Apple needs a quadrupling of your manufacturing capacity 10 their sale means in order of magnitude more capacity, but we sized our engineering lines to be appropriate for the development work, we're doing on single ourselves.
We had a single no data that we shared with the world in December we started ramping up production.
Tools and equipment.
With the blues more cells, but unfortunately, a lot of those tools.
The good news.
Acquire those two is from existing suppliers. So we don't need to make those tools ourselves, but on the downside those two would have lead times associated with them. So we can't just turn on its figured it'd make more cells overnight. There's a lot of tools awaiting on that have been ordered.
We.
Deliver turned up configured that's really probably the most immediate gating item to their multiyear ourselves once we get that capacity installed we are going to be able to produce more cells duty appropriate engineering work to finish that development cycle.
Once we get to our target of eight to 10 million by year end.
Right.
We will have.
As I mentioned in the prepared remarks, the building blocks to.
To be able to help them.
<unk> built the samples will provide to customers.
Okay, great. Thank you.
Can you just give us an update on your latest thoughts on scaling.
Just assuming that everything goes well with.
The pilot line in 2024, presumably youre going to.
Want to scale this as much as possible.
With.
A variety of.
Cell manufacturers, so what could the economics of that look like.
As you want to expand beyond 2024.
Well I mean, you just need to make sure I ask the question that you're asking about kind of the business model for how we might do.
More of our production capacity or that I would I would assume that you would want to.
Leverage capacity, that's being built by a variety of different cell manufacturers elsewhere right. So that would involve some licensing arrangement.
It would be challenging to manage that all.
By yourself.
Yes, so what we've said is there sort of.
A handful of key fundamental ways you could do production. So the simplest way to do it all yourself.
One of the ones you mentioned right.
The next way is we have this JV type model that we're doing with Volkswagen.
No.
Sure.
That case, we're obviously, bringing the core.
<unk> solid state battery expertise and they are bringing a lot of general high volume high quality manufacturing background.
The other models, where we can actually outsource some of the components that go into ourselves for example.
The real unique part of what we're doing in the course of the solid state separately.
Some of the capital to work could potentially be done by third parties. So.
Obviously exploring match.
The ultimate.
I think in terms of outsourcing would be if we were to this license the IP to a third party manufacturing company.
Challenges of course as you know.
It's just the IP protection of IP diffusion, but you don't want a license IP.
To somebody.
Unless you have super high confidence that that IP is going to be protected otherwise use kind of diluting the fundamental.
Jewels of the company in some way so I think what we're doing is trying to just look at the economic tradeoff and balanced between those different.
No.
Models.
For sure we're doing the JV with VW for sure we're doing our own.
Production with <unk> zero and.
We have no particular desire.
Two.
Spend any of our capital or any of our teams' energy of bandwidth.
On.
On up.
Do think that that can be done better elsewhere or they're already being done elsewhere. We want to basically do things that are not available elsewhere. So if we can buy something.
That has sufficient quality and reliability to meet our needs from a third party, we will absolutely want to pursue that.
It's only if somebody doesn't make something that we need that we want to do it ourselves. So that's the general philosophy that you can assume we will use going forward on that front.
Okay, great. Thank you.
Sure thing.
Thank you and our next question comes from Ben <unk> from Baird. Please go ahead. Your line is open.
Hey, congratulations guys.
On the first conference call and thanks for all the information.
Yeah.
One of the things you talked about.
We're still trying to understand the layer and congratulations on that stuff once you have the sufficient.
A sufficient number of layers how difficult do you anticipate it is transitioning.
Transitioning into a pack.
That's my first question.
Yeah, Hey, Dan how are you. Thanks for the question.
The the number of layers as I mentioned earlier.
That we have any sale is going to be really a function of what the particular pack and module need so it'll kind of be designed with the pack in module and.
Once you have that sell with the right number of layers.
Then the Tac level design is relatively speaking.
Straightforward in the sense that.
The electrical behavior of the cells is similar to what is already being used we use the same cathode material that's conventionally they used to be.
Discharge profile electrically will be it will be very similar.
Thermo behavior of the cells.
We expect will be better because.
The lithium metal that makes up our anode is a much better conductor of heat them than traditional carbon based anode is so we can shuttle away heat much much better also are separate there is much more tolerant of heat at stable to.
Very very high temperatures.
The BMS interface should be very similar to conventional bms's. So we think that integrating at the <unk> level it should be.
It requires engineering of course, but.
But because the cells have already been designed.
We'll have been designed to the particular.
Module impact specs.
We don't expect any fundamental challenges there.
The real key is just being able to.
The complete this multi year development that we showed the really really big data on earlier earlier today.
Okay.
You mentioned consumer electronics, and then stationary storage and potentially other markets could you talk about.
Why because it's counterintuitive to me, but consumer electronics it seems like it could be the easiest market to go after.
The less.
Sure.
Less onerous requirements.
<unk> around.
The impacts of the batteries themselves, but maybe that's just the folks are already relationship.
So it is moving.
Moving you towards the auto market first.
No. It's a great question.
Many years.
Got a lot of time with the early days of the company is trying to figure out which markets and geographic look there's many battery companies that try to do it all and our fundamental belief is as a startup we had to focus where you're trying to do too much just result in doing nothing well, we wanted to we'd rather we thought we'd rather take a smaller number of markets, but really solve their problems really well.
Another question when do we pick if we can't do them all.
Based on our analysis, you actually by consumer products without a doubt is a much easier market doesn't need the same power density no one's going to media foresee charges 50 minute charge for a cell phone.
Operating temperature liquid EVP of negative whatever 10 2030 degrees.
Pretty much going to be a positive 10 degrees Celsius is within respect.
You don't need.
Many layers, it's easier in so many ways.
Having said that we saw that.
The market was so much bigger with the automotive application.
Each each car is long ridge BBB.
Tesla model less cost vehicle.
Has the equivalent of 10000 iphones worth of batteries right. So that's four orders of magnitude bigger which is massive right. So if you look at apples volumes I havent checked recently, but even if apple sold something like 200 million pounds a year.
That would be really the size of a small pilot line.
That's not much.
More than outsourced VW phase one pilot.
Outlines what we'll be producing so it's a very small wildcard of what we do here. The second point, we make is it in terms of the impact of the application.
Phones they'd love to get more value.
Consumer devices would love to.
<unk> reduced the volume taken up by the battery by a factor of two so they can squeeze more functionality and more electronics into the home.
But in terms of.
Perfect defined bonds right now that there is something you know a lot of whereas when the automotive space. We felt like like these these benefits are really disruptive enablers of a much higher level of penetration so between the combination of the.
The importance of our technology.
In the automotive sector.
Others, and the size of etc. We locked in on that on that particular space pretty early in our lifecycle and I think overall it was a good decision because we were able to get this vod partnership which has.
It's been phenomenal for us as you guys already know and I think.
Executed exactly on what we are hoping which is that.
We pick one phone and we think we're solving it well and having solve it because in some ways. As you pointed out. This is the hardest of the problems extending to the other sectors is really in some ways a move downhill. So we feel like we're well positioned.
Now that we have this sort of the high ground.
Go ahead and expand into other segments overtime.
That's very helpful and just if I could sneak in one more thank you for the helpful landscape paper here I was wondering how difficult.
Or how you guys get the information from your competitors are you able to actually get cells and test them and then vice versa or are people out there a walk to get yourselves and test them as well.
Yes so.
Great questions. So first of all many of the other players in the solid state battery space.
I'll either startups or.
Or small research labs within the companies that publish their results. So a lot of a lot of what those guys are doing we have.
Directly from the source based on papers may pollution, and tweets that are issued in <unk>.
Website, they put up so we know what the numbers are they're sharing.
And the other way we have information about this it's not just by reading papers, but let.
When we started the company we were looking for the solid state material. We didn't have an answer back then 10 years ago. So we literally had to go through many many different materials in our own that we went through we made lots of sulfides with.
Polymers, we did a lot of work on a lot of different types of approaches.
And in doing that work we were.
We're able to firsthand to understand what's the limitation for and what the issues were so when people talk about the sulphides, because that's a pretty popular classic material sulfides.
One big advantage, which is that they are they're very highly conductive almost about the same productivity as today's liquid that rights.
What made them that's what put them on the map people got really excited that we have.
Solid state materials conduct lithium ions at world liquids, Ken the problem is.
<unk> eight.
Just who they would not prevent dendrites.
And b they are the least stable the commonly used all of the material. So if you go above say two for US are also below $2 two volcker. So.
You see fundamentals ability is leading to chemical side reactions and impedance or resistance growth, which eventually obviously killed themselves. So Catherine.
Both are.
At higher and lower voltages, respectively, compared with the sulfide. So so we did a lot of that work and get the materials. That's what's given us the confidence that this is not going to be an easy problem and people. Many people out there. Many groups are working on material systems that at all.
Argue are dead ends.
Yes.
We hope for their sake, they can find ways to make them work and certainly the market is big enough to where multiple players will absolutely be able to play in this space.
It's such a massive market but.
Bob.
Having other entrants isn't more we're going to reduce our opportunity, but but but to be candid. We just haven't seen anything out there that's one thing.
We will point out is that a.
Lot of people make claims a lot of people.
Announcements, but.
Very few people actually have shown data and of the ones that have shown data the data it makes clear that debt.
It's a compromise test conditions right. So if you look at the key requirements had mentioned and that is all of that basket.
Overview, you need to have US also separately that can run at high current entities like enough to drive the car to charge fast in 15 minutes, you need to warm and ready.
Regular temperatures like 30 degree Celsius, not just elevated temperatures like 70 to $80 60 degrees Celsius and you need to have a long way to go 800000 cycles with minimal degradation.
And no single player that we are aware of other than what we've shown has shown data comparable to that so this is also why we talked about the fact that building multilayer ourselves with a building block there that isn't capable.
It's just it's not a it doesn't it's not a sound strategy not going to.
If you can't make a single storey building standup youre not going to solve that problem and we're trying to make a multistory buildings. So.
That's kind of how we know about these competitive alternatives is a combination of having seen papers published by those groups directly and then our own work in many of these material systems in our own labs.
Thanks again.
Absolutely.
Thank you and our next question comes from Joseph Osha from JMP Securities. Please go ahead. Your line is open.
Hello, Darrin, let me add my thanks to everyone else for such Great disclosure of a couple of questions. You got a nifty chart in your industry overview of showing different cathode materials and that kind of.
Western.
Obviously youre trying to go with more of a commodity solution. There, but has there been any sort of interesting learning or levers that you are finding you can pull in terms of the cathode material and then I do have a follow up.
Yes, I mean, I think one of the things that we pointed out is that our system is relatively cabinet agnostic what that means is once you have a solid state separate here.
That works you can use any cap rate I would go further I would say, it's all needed catheter agnostic, but you can actually.
With this kind of a system you are you open yourself up to a broader range of catheter, which then can be used in conventional cells for the simple reason that our solvency stimulator provides an electrical isolation between the cathode and anode now in a normal cell.
If you remember our genetics from our various presentations.
The catheter later, we have almost separately, which has put us in the anode carbon silicon labs and I remember that there is a the wholesale is flooded with the liquid electrolyte, which is solvent towards lithium ions move up and down without liquid is in contact with both the cathode and the yen, which means that it has to be stable at both the mobile version of the anodes and the high voltage of the catheter.
And it's very hard to find material in nature that have that why the stability window relative to voltage. So when you isolate the cathode too just the catheter by having.
On the electrical insulator, which is a separate here between the anode and cathode you now no longer need to have materials that are stable to low voltage that actually.
How's you to potentially use a broader.
From a broader universe of materials for the catheter and capitalized.
That was a long answer but the short answer to your question is to come.
We have a lot of patents on different types of cathodes. If you look at our patent portfolio. For example, you will see.
Patents on.
Classic tool known as the metal flights, which as a conversion chemistry.
Some of the highest energy density materials in fact on that chart youre, referring to that shows the dozen capital materials. Those are the ones on the extreme right.
Yes.
We need to.
Yes, we didn't see a need to try and commercialize that.
Day, one because the solid it's obviously something that with the lithium metal and gives you enough of a win too.
Where we can focus on is getting that to market.
And then having the new cathodes B b.
Sort of.
So new.
Our materials that provide further growth from there.
And I assume your customers don't want to mess with exotic transition metal cathodes anyway.
Well, yes.
It would complicate it a little bit the electrical interfaces that I mentioned earlier. So this way to talk a simpler interface into the attack absolute.
Okay.
Second question, I mean, another sort of TBD and CVD, whatever processes, where you're making wires of things.
You add wires things can always go right, but in the end rather than having material will be wasted entire when you can burn it depending on.
The amount of imperfections you got so I'm just wondering if youre working at your process and I've got 36 wires or whatever.
If it goes wrong and why are 35 is there a way to Ben that still use it or do you do you lose the whole the whole thing.
Well, it's a good idea and I think once we get at this point, we're just focused on trying to get the overall.
Production volumes up at over time.
That's going to be a great strategy. This used obviously very effectively in the world of semiconductors, right and if you have.
If you have.
Unit.
That doesn't meet the specs for one application, but does meet the specs of our different applications to absolutely Bennett and scrapping.
Use it for that lower valued applications or other kind of things that were kind of doing over time I think right. Now we're just kind of focus and this increasing kind of the base level of production using more.
Sort of a high throughput tools more automation more kind of a continuous flow to us in the process.
Okay, Great and then my last question sorry for the multiple questions. I know you had said that the all of the initial learning is around the <unk> form factor I mean has there been any additional thinking on whether this could work in a prismatic or <unk> form factor and that's it for me. Thank you.
No. Good question. So we have said that we don't expect to see this to be using cylindrical form factors, even though our separate or as we've shown images.
It's relatively flexible for ceramic it's actually having sufficient bend it.
Without damaging film.
We don't intend to wind it.
Diversity of a pencil or something.
Both prismatic pouch and prismatic can sales, though are very much on the radar and then the day, we will work with our automotive Oems to pick.
To fit the packaging format.
Meets their application. So we're not there's no religion on that at quantum escape.
<unk>.
Our value creation.
The materials that go into the battery into the cell.
How do you package it we're going to let our Oems.
Have a significant role in helping us and helping guide us there.
Super Thank you for the seminar it's great.
Yeah.
Yes.
Thank you and this concludes the Q&A portion of our call I'll now turn the call back to Jack <unk> for closing remarks.
Yes.
Just wanted to say thank you everybody for joining us on this call today, our first earnings call and we look forward to reporting our progress to you over the rest of the year.
We'll plan on using the same format for our subsequent calls we will issue a shareholder letter that highlights the.
The progress for the quarter, we will have a short earnings call, which will present a few.
Highlights of the show letter and then really spend most of the time on Q&A.
Look forward to continuing to work with everybody going forward have a great afternoon.
Thank you for joining US today. This concludes our call you may now disconnect.
Sure.