Q1 2021 Quantumscape Corp Earnings Call
Thank you.
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Good day and welcome to Quantum's Capes first quarter 2021 earnings Conference call, John Steger, Quantum's Capes head of Investor Relations you May begin your conference.
Thank you operator.
Afternoon, and thank you to everyone for joining quantum states first quarter 2021 earnings conference call to supplement today's discussion. Please go to our IR website, IR dot quantum state dot com to view our shareholders.
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.
Including uncertainties posed by the difficulty in predicting future outcomes joining.
Joining us today will be quantity, it's co founder CEO and chairman, Jack Deep thing and our CFO, Kevin Patrick J.
<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 Deep Sea.
Thanks, Sean.
Welcome to our earnings call for the first quarter of 2021.
Earlier today, we probably still a bit of our shareholders summarizing the major developments from the last quarter 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.
At the end of March.
Completing our BW milestone, which required that we deliver to BW co testing in their laden, Germany sales of a specific form factor and performance level.
The form factor consisted of newer production intent separately fitness area.
The performance level required that the self operated we determined rates of power and temperatures for a specified number of cycles.
We were pleased that we successfully met this milestone and this represents a critical step towards industrialization.
And also unlocked an additional $100 million investment from VW.
On the technical front, we are pleased to report that the team has made for yourselves and the larger 70 by 85 millimeter form factor that we laid out as a target on our last earnings call.
As the data in our shareholder letter shows early results from the testing of details looks promising approaching 500 cycle to date with excellent capacity intention and what they felt was continuing to cycle.
These results from forward air commercially relevant area. So indicate we are on track to meet our eight to 10 year fell milestone by year end, followed by prototype samples and commercially relevant factor containing dozens of leaders by 40%.
92.
We also report today data from testing heartfelt with zero externally applied pressure in other words, one atmospheres total pressure and quantify itself.
This is noteworthy because other solid state lithium metal efforts that we are aware of have generally required pressure because cycle. However, delivering very high pressures at the consolidated systems require adds cost and complexity to the system.
As a data in our shareholder letter, which shows the cells achieved over 1000 cycles with good capacity and pension even with zero applied question.
We did this work in quite inside cells, which is the platform. We use for early refreshed welcomes and while there is more work to be done to replicate these results in larger yourselves achieving these results in the form factor is an important first step towards introducing this capability into log yourselves.
We believe that being able to manufacture yourselves that requires zero applied pressure that enable us to address markets beyond automotive such as consumer electronics, we're applying pressure impractical you the size of the change and while not necessarily for automotive applications.
<unk> automotive module and pack design in the future.
On the manufacturing front last month, we signed a new ball term lease on approximately 197000 square foot facility near our headquarters in San Jose that will house, our <unk> zero pre pilot line as well as other R&D activities.
We plan to move into this new facility in the fourth quarter of this year.
Finally, we raised $478 million gross proceeds from our follow on offerings in the quarter of which approximately half will be used to fund the expansion of <unk> zero to over 200000 cells per year.
Additional capital from the equity offering will be applied to fund the build out of <unk>, one our joint venture with W, which will target commercial production from the 2024 and 2025 time frame.
We've now accomplished two of the four previously announced milestone for 2021, BBW milestone and securing a facility for kyocera.
And I've made strong progress towards the third.
Multi there so on the commercial development forecast.
Our remaining stated milestones for the year are the complete the development and testing of the formula and promotional levels by yourselves.
And then to build eight to 10 year full sized battery cells.
A few words of historical context.
<unk> and I started the company over 10 years ago with a vision of enabling the next generation of electric vehicles.
We believe that if we could develop a solid state batteries.
Could facilitate the transformation of the automotive industry.
Internal combustion engines to electrified powertrains, enabling a substantial reduction in greenhouse gases.
We didn't know when we started whether we'd be successful.
We were fortunate enough to have a combination of investors and team members who are committed enough to this goal we're weathering the ups and downs of the development process.
We ended up taking US 10 years with deep Experimentations heavy materials, you can think of develop our solid state operator, and the associated scale manufacturing processes.
This single minded focus will serve us well in the past and going forward, we intend to continue being singularly focused on executing to our development plans.
We believe if we can do this we will achieve our goal of building the next generation of value to our customers positively impacting emissions and creating significant value for our investors.
Based on the groundbreaking results we have shown so far we remain optimistic about our ability to execute on this vision and achieve our goals.
Given this context with the exception of satisfying tax obligations.
To not sell any of my farms get holdings at least until we had delivered the prototypes and then commercially relevant to.
Bulk sloppy.
In closing I'd.
I'd like to thank all of our employees for their incredible groundbreaking work they've been doing and his commitment to our mission and vision has gotten us to where we are today.
With that I'll hand.
It over our CFO, Kevin Patrik to say, a few words about our financial performance and open it up to Q&A Kevin.
Thank you Jackie.
In the first quarter, our operating expenses were $45 million, excluding stock based compensation operating expenses were $33 million.
This level of spend was in line with our expectations entering the quarter.
For the full year, we expect cash operating expenses to be in the range of $130 million to $160 million.
In terms of Capex on a full year basis, we expect to spend between $130 million and $160 million.
Half of that spend is dedicated to our 200000, plus <unk> zero cell capacity as well as tooling and machinery associated with an additional engineering line in our new building.
As I mentioned capacity increase of <unk> Euro enables us to provide more prototype sells to VW other automotive Oems and prospective customers in other industries.
We intend that <unk> will establish a mass manufacturing system blueprint.
Learnings from the larger kyocera capacity, we expect to help further derisk, our Q1 scale up.
With respect to cash you spent $35 million on operations and Capex in the first quarter.
We anticipate the aforementioned free cash flow burn to be in the range of $260 million to $320 million for 2021.
This is approximately $30 million more than we communicated on our February earnings call predominantly due to capex associated with the expansion of <unk> capacity.
We ended the first quarter with approximately one 5 billion in liquidity.
We plan to end 2021, with well over $1 3 billion.
Increase of over $300 million compared to our liquidity position entering the year.
We believe this capital fully funds quantum scape through initial Q1 production and additionally contributes to the subsequent Qs one expansion.
Of course, the pace with which we were able to spend will depend on several factors, including our ability to ramp head count and the maturity of our production processes, including the level of its automation.
Our GAAP net loss for the first quarter was 75 million.
Of this amount $31 million represents the noncash fair value adjustment of the assumed common stock warrants in accordance with U S. GAAP previously referenced.
With respect to share count I'll be providing numbers rounded to the nearest <unk> 1 million shares.
We ended the first quarter with approximately 389 8 million shares of common stock outstanding, including approximately 12.0 million shares from our March follow on equity offering and approximately $9 5 million shares issued upon the exercise of assumed common stock warrants during the first quarter.
While the technical milestone associated with BW investment wasn't that in the first quarter 2021, the investment closed after quarter end following the expiration of the applicable regulatory waiting period.
Sequentially the $15 2 million shares subsequently issued to VW are not included in the aforementioned 389 8 million shares of common stock outstanding at quarter end.
Similarly cash subsequently received from BW is not reflected on our Q1 balance sheet.
In summary, we're excited with everything we accomplished this quarter and look forward to the challenges ahead, we'd like to thank our investors for their support and belief in our mission with that I'll pass it over to John John.
Thanks, Kevin.
We've done in the past we will now review a few of our most asked questions from investors during the quarter before moving to the traditional Q&A session with our sell side analysts.
J D can you explain how you've tested for dendritic and what gives you confidence that you are separate or can resist and rates.
Sure John So the best test within that resistance is actually the cycle, how long can you cycle under Uncompromised test conditions, meaning high power density and broad range of temperatures.
While single there so we've shown over a thousand cycles to over 80% capacity retention at high rates of power corresponding to one hour charge and discharge and a temperature of 30 degrees Celsius as opposed to elevated temperatures of $60 $70. <unk> again. This is probably the best test to show resistance to the reclamation.
In addition to that test.
One additional test to determine the fundamental capability of our solid state material hedges.
The latter test, where we charge at a given rate for a given amount of charge and keep increasing the rate.
How much dress the material can take.
But then it will be reporting on a battery showcased showed the solstice epitope and survive.
100 million apps within the square many times higher than what the seller with ever experience.
Work setting. These are some examples of the tests that have given us confidence that our material can impact resistant rights and reward configurations.
Okay great.
Next can you talk a little bit about the different types of temperature testing in our presentations and by investors will see for example, the latter testing that you mentioned was done at 45 degrees Celsius versus our normal sort of cycle that testing, which are done at 30 degrees Celsius and then there were also some tests done as low as negative 10 degrees Celsius.
To show the performance versus traditional lithium ion batteries.
Sure. So our standard test conditions, our test our 70 to 85 millimeter area cells, which is the commercial relevant form factor at 30 degrees, which is named room temperature.
Once the rate, which means one hour charge in one hour discharge, which actually is a relatively aggressive rate of charge and discharge corresponds to discharging your entire battery pack with hundreds of miles of range for an hour and supercharging. It can we charge them back in one hour. In addition to the standard set of data we report additional data to more fully character.
<unk> performance in the cell.
Sometimes report data at two of our key three hour charge and discharge rates.
Well as higher and lower temperatures to reflect conditions of the sale might see in the real world, Although the latter test.
We used 45 degrees and you had mentioned when can we start here.
And Thats the effect feedback from the automotive Oems that we're working with the fast charge, it's most likely to occur when youre just coming off of a highway and the battery pack is likely already self heater.
The negative 10 degree tests that we do is also very important to show how this outperformed in colder temperatures when lots of key required for the automotive application. While there are many sources systems actually can't run well at these cold temperatures. So that data is an important indication of the award applicability.
So the summary is that we try to test the salt and the standards configuration whenever possible and where we add additional tests to provide a better sense for how the self perform that will will that incremental data beyond the base that doesn't quite.
Okay, great. Thanks, let's talk a little bit about the competition because I think investors this quarter noticed a difference in the approach between you and some of your competitors. Some of them are scaling up first and making large numbers of cells on large scale manufacturing equipment before they've shown cycle Ais data that meets the automotive requirements of 800 cycle more than 80% capacity.
<unk> when their argument being that scaling up is actually the most difficult part of the solve this approach, whereas clients Cape appears to be taking the opposite there. So can you discuss these two different approaches.
Sure John Let me, let me back up a step. So there are only a few basic materials that exists relative to making solid state materials as a.
Three main ones that are populated eastern polymers sulfide and oxide all three approaches have had issues. The most fundamental one being more ability to prevent them drugs.
System that can't stopped antibody secondly, we'll never be usable in the car.
Actually some device has wanted to be a really hard problem and many groups who are working in the space on an easier to try and solve the scale and size of the self problem and talk about adding scale rather than solve the fundamental issue of dental formation.
Seth approaches.
End up working at elevated temperatures Ah 60, 70, 80 degrees, although lake Powell like <unk> five.
Makes it impractical for real automotive applications and what how big is that we make or how much capacity. It doesn't work at all.
These approaches represent pathological debit.
One of the two in particular thats being used by a number of competitors.
They are talking about scaling up is at fault bipap materials.
Fortunately the size the Denver issue, we just discussed.
We have an additional serious issue, which is hydrogen sulfide formation.
So how do you stop either piece to us is an extremely toxic gas.
<unk> upon contact of sulfides ordinary air which contained water water reacts with the sulfide form issues and a quick Wikipedia search will tell you that HOS can kill at a few hundred parts per million.
So it's a very serious issue that needs to get solved the sulfide based approaches quanta.
Quantitative by contrast chose to first make a system that can be shown to meet the basic requirements of cycles at high rates of powder E. One hour charge and what our discharge without requiring temperatures elevated to 60 70 already we saw pes having.
Having shown these data in December we've now I'll turn my attention to scaling up so one last point I want to make regarding fundamental tendency versus manufacturing scale.
Some people say building a prototype.
Manufacturing is hard.
I would say it depends on the type of product you are talking about in the case of a car I'd agree that making a prototype might be easy since theyre typically no material level of benches required to make a car.
Manufacturing can be hard because it requires coordinating bill of materials that might have 10000 parts of it and ensuring a smooth running supply chain that can deliver each of those parts on time is not a trivial one.
Mr Park, and cultural and to stop that.
If we're talking about baton going ahead.
I'd say the chemistry is the really really high park and as evidence I'd point to how rare it is to see fundamental new chemistry over the last few decades that have entered commercial.
<unk> deployment and in particular to export to the 40 years of work that have gone into solid state materials will go.
Due to our commercial success to show for all of that work.
By contrast, many companies in the battery space have shown that can build that big effecting in 18 to 24 months.
Because there are no new laws of physics required to build batteries batteries for this reason we chose to focus first on confirming that we have had a material are solid base out there that could cycle under uncompromised test conditions without handwriting.
I think we've shown that we've.
Start off with is to scaling up the layer count and production capacity of engineering manufacturing lines. We believe this is the only path to making a commercially viable chemistry portion of the chemistry works and then focus on scaling up the production factory not the other way around.
Okay, great. Thanks for the thorough assay. Our last question goes to Kevin Kevin What's the total capex of <unk> and how should investors think about this relative to the guidance that you traditionally given around long term capex spending having a one to one relationship with annualized revenues.
Hey, John Thanks for the question.
We have said is that capex spend on our new facility accounts for approximately half the $130 million to $160 million Capex spend that we estimate in 2021.
We expect a similar magnitude of Capex spend on the new facility in 2022.
Zero will be higher in terms of cost per unit capacity than our subsequent Q1 facility.
Reasons for this.
First the one off engineering costs for Q zero tooling related to quantum scape specifications are estimated to be a higher percent of total capex cost and also are not expected to be spread over as higher volume of purchases for our <unk> facility and second give us one will feature larger scale tools that offer greater economies of scale.
We believe for long term capex per unit revenue targets remain achievable.
We have the benefit of eliminating anode related production equipment as ourselves our anode free as manufactured we.
We plan to install in Q zero same type of continuous flow of equipment assumed in our long term forecast and the future work will be to hit our targets operating that equipment. For example, uptime line speed et cetera to successfully achieve our long term cost targets.
Alright, great. Thanks, Kevin.
Now ready to begin the Q&A portion of today's call operator, Please open the lines for questions.
If you would like to ask a question. During this time. Please press Star then the number one on your telephone keypad again to ask a question. It is star then the number one.
Your first question is from the line of Adam Jonas.
Hi, everybody.
First a question about cell delivered to Volkswagen and two other auto OEM customers.
Im reading into your comments that they would have external pressure I'm, just confirming that there may be benefits over time to having zero external pressure, but but the I just want to confirm that what is required and what is expected from the Volkswagen within the Volkswagen JV is that it would have external pressure I'm curious how much how much that adds in.
Whether the amount of pressure matters in terms of form factor or cost.
Yes, I can.
The sales that we deal with Davita.
Under the standards pressure that we've been reporting ourselves at.
So.
Basically if you look at all of the data we published when we report the pressure that the cells are under.
No.
In the automotive application delivering pressure as well.
Modest amounts of pressure is not an issue because the cells go into modules and module is going to pack when we can.
Engineered systems that can together with modest months pressure without.
Significantly increasing the complexity of the design, it's when you get into incredibly high crushers like 10 atmospheres are above that.
The system design becomes really complex and potentially extensive with zero pressure data that we talked about today.
Brand New data. This is an additional new result that was not on the publicly stated roadmap that we've laid out.
The benefit there again first of all it is an industry first.
Generally speaking.
So all systems do require pressure to maintain interfacial resistance.
Good levels.
But the benefit of real pressure.
Is that you can.
Make the system applicable to applications, where.
Just don't have the volume to the refreshes. So for example in a consumer electronics application like Mike.
Mobile phone.
Just isn't enough room to have any kind of pressure.
The mechanism.
The big benefit.
Zero questionnaire designed by your question of course, I mean zero extra movie apply pressure there's still.
How do you want atmosphere of natural pressure on it.
The benefit of that approach is it opens up applications like consumer electronics, which could be interesting applications for our technology.
And it does simplify the design of the module and pack you can do it for automotive, although it's not required and thats. The key point, we're making.
Switzerland.
Thanks Jack.
Just one follow up for the team what opportunities does quantum's Cape have.
In either the U S or Europe in terms of.
Government grants or low interest loans for example department of energy <unk> loans as you are in a position with your liquidity and your growth to be contributing to the economy and adding high tech.
Manufacturing.
<unk> <unk> technology jobs in important areas I'm, just curious on the kind of early stages of the.
Proposed infrastructure Bill and things like this where you are how you are how you're gauging that landscape and is that is that something that even if it is not necessary because it seems you have ample liquidity could be an opportunity that.
We may see some development as soon as this year.
Yes, I can let Kevin take on the specific question about government opportunities.
I'll, just preface that by saying in general.
There are a.
A few key sources of capital for a company like ours a lot of courses.
That we've already got.
<unk> from private investors and public investors, that's already on the balance sheet.
Obviously, similar capital available to public markets in the future the second.
As of course partnerships with the key automotive Oems.
What we're doing is so strategic to the automotive sector.
We are seeing.
Significant interest on the part of the automotive Oems.
That helps.
Fund the industrialization of this technology. So obviously the VW JV is a great example of that where there.
Obviously, we've announced already there from being half of the JV that we're doing for our initial deployment.
Sure.
Other Oems.
Sure.
Find the technology to be <unk>.
Really significant and so that's another source of capital is the automotive Oems.
Yes.
The third source of capital is in fact.
Government incentives and.
Both both at the federal level and the regional level. This is not just here in the U S. But many parts of the world.
Recognize how fundamental transformation of a very important industry.
In the middle of it.
And they recognize that having a domestic battery industry.
Could end up being a critical part of maintaining their jobs base as long as there are technological base.
Obviously, Germany is one of the major manufacturers as well.
Cause.
This particularly concerned about this but in general you Theres lots of countries like the U S. Under the current administration is.
Rising at a similar conclusion, so with that as context, let me turn it over to Kevin maybe Kevin you want to say a few words about specifically government level.
<unk>.
Sure Adam that's a fantastic question really just three things to add to <unk> comment the first is that.
What you were noting is certainly the precedent for conventional lithium ion factories. So.
But if you look at any of the major recent factory announcements they do tend to be paired with either.
Some level of country or state or city level support for all the right reasons that the Jaggy played out.
The second point I'd make is that we haven't assumed any of this in any of our historical projections. So.
<unk>.
If qantas does indeed receive any type of subsidy or government support that would be upside to any of our plans or projections and then the final point on their strategic nature. In addition to all the direct jobs being created at the factory there is all of the.
Strategic jobs created that our indirect as well both in the tool tool supply as well as in.
The rest of the <unk>.
The supply chain as well.
Thanks very much.
Thanks, Adam.
Your next question is from the line of.
Gabe Daoud with Cowen.
Hey afternoon, guys. Thanks for all the prepared remarks and the Q&A.
I was curious if we could just go back to the four layer side about 85.
Tests I guess.
The pressure requirement and how is that relative to your expectations and I guess once you start.
Yes.
Adding the layers here and getting to eight to 10, how do you think that requirement will look like for for a design of eight to 10 layers. Just I guess just trying to think about if you think that's a good point it could trend down throughout the rest of this year.
Yes.
Experience has been so concurrently apply as you know a single digit number of atmospheres of pressure.
And.
But when you apply pressure to our stack of cells.
That pressure.
Distributed to the stack. So you don't increase the pressure.
As a function of number of layers.
The pressure has nowhere to go literally just go right through the rest of the stack.
<unk>.
It's not the case that for example, 10 layers requires 10 times of pressure.
That's point number one point of materials.
Reason why we released the data on the zero pressure results.
We indicate that in fact, the team is making great progress.
The area, where there hasnt been a lot of progress historically, which is cycling lithium metal anodes.
The need for any extra with blood pressure and the reason why we think thats interesting because that does simplify the module and pack level right. So even though.
We believe single digit atmospheres.
As a design that can be engineered into automotive applications and we think it's a simpler design did not require any pressure. So we will move in that direction that we've shown proof.
Proof of concept with these initial look at yourselves and.
And then also that that will open up additional applications that do not have an opportunity for pressure like consumer electronics.
Thanks, that's helpful. And then maybe just as a follow up.
Volkswagen on their power, Dave mentioned go into uniform so route.
Prismatic approach could you.
For I guess, 80% of the needs could you maybe just talk about your.
Our expectation around cell design, and whether or not you could go from pass a prismatic to maybe a comment on VW or would the.
Pouch design, perhaps represent the additional.
20% of demand from from Volkswagen overtime.
Yeah. So I think the key point, though is that when we say commercially relevant for factory. We mean, a design that can in fact do engineered into a module and pack at the Carnival and the key there really is to have it up.
There isn't enough energy density.
Given the <unk> bankruptcy.
<unk> is too small then what happens is the packaging and inactive materials start to dominate the sell and the energy density what hours per year drops.
As we've mentioned on previous calls.
<unk> it's <unk>.
<unk> sighs debit cards side, one factor that we've been talking about.
Dozens over there isn't it.
It does in fact allow us to hit.
<unk> thousand one hour will be the target, but we have.
And so with that.
It.
Is it being commercially relevant to Oems and <unk>.
You're right that there is a longer term desire.
On the part of not only BW, but many other Oems to move to a more better reps.
A little wider than the debit card side for Petro lease that we've shown.
And Thats something that we will address.
Future, but for now our.
Current flowback or target for commercial development designs.
James.
Speaking of that deck of cards style.
Because.
In our models that can that get us to the 1000 hour.
Peter.
As you get to your target.
There isn't a need to.
Try to go to larger larger form factors, which then require.
Additional development to two <unk>.
Social lives.
Got it thanks, Ravi thanks, everyone.
Okay I appreciate it.
Your next question is from the line of Roger Shea with Wolfe Research.
Hi, everybody.
Just first question just a clarification that the zero pressure cell that you described that does not have any liquid and it <unk>.
Yes.
Good question I wanted to platform.
Let me ask this so.
When we talk about solid state what we're talking about is two things one is that theres a solid state separately, so the separate or is.
With a dense material.
Unlike todays sales, which have a plus.
Separately, we made out of a typically.
Organic that you like polypropylene polyolefin materials.
Those materials don't conduct by itself.
<unk> can't move through those kinds of plastics so.
Instead, what they do is they have holes in them and those holes.
And with the liquid electrolyte.
Accurate floods, the cathode the separator as well as the carbon particles that we handle it so it can be emulated itself.
In the solid state design like the one we're talking about we eliminate the fourth typically replacing with its pure dense around that there is no hold in it and so the movie lineup as we move through the.
The lattice.
The atomic lattice of the separate to itself.
And then second point is between the stat that solid separate here and the pure metallic lithium there is no liquid.
That's just a direct.
Interface, a solid solid.
In our cat load there is an organic material.
Consistent with polymer added liquid that Kathryn.
We calculate is limited to the capital because we have the ceramics, operator that liquid doesn't.
Doesn't actually make its way through the end of lithium metal is it did.
You would actually see the cycle lifesaving much more quickly than what youre seeing with ourselves so and also as we've shown.
<unk> thousand cycles.
Of cycle life, with well north of 80% in many cases, 90% capacity attention so significantly above the spec and that we don't believe will be possible. If you use a liquid solved because liquids.
Our loan to react with metallic kicking this thing has been the whole problem with liquid based cells and lithium metal is that chemical side reaction between liquids and lithium metal results in a loss of both lithium and the liquid.
As well as the buildup of the accident side products that raised the impedance or resistance of itself and as a result, the cell cycle life starts to fade within three or 400 cycles.
Get to 80% and starts dropping off so.
So the key to south yourself.
Is <unk> something that does not.
How many holes in it to allow liquid.
Liquid penetration can be.
A.
Lithium metal anode that makes a direct interface with that separately without the need for any liquid in the middle.
Okay.
Helpful. Thanks for clarifying that.
You made a comment in the letter Jack deep about the development tasks ahead.
A couple of them, obviously related to manufacturing throughput yield and uniformity can you talk about the path forward on that what kinds of metrics are you targeting for these how challenging are they.
So yes, those are obviously key requirements for any high volume scale of process and when we went through a similar process in my last company, which was looking at optical photonic integrated semiconductor chip.
And.
Yields one of those things, which is continuing to increase as long as we learn more about the process and how to get the deformity how to.
Fewer defects fuel contaminants.
Lab statutes or U.
<unk>.
Kris.
<unk> is a function of.
Of the tools that you have in the processes that you have so if you have.
Things like batch processes in there with a lot of human intervention those tend not to be scalable, which is why the design that we have to make our solid base system is.
As one that uses continuous flow processes. So those two steps in the manufacturing process.
<unk> wants to make.
What we call the green taped to cast the material.
Denim continues for quarters.
Not too different from what's done for today's capital electrodes.
And that in factories and the second step is the heat treatment.
And that's step two is a continuous flow process.
Just wanted to.
Continuous flow heat treatment tool.
That ends of processing those at the right with the right heat.
Hi.
So.
Those are the kinds of things that we're doing.
And we keep doing it every day.
The measurement of that it comes out it will be able to deliver the cells that we are planning on delivering to our customers.
If we could for example have.
Zero produce $200000 a year like we're planning on.
That would be an indicator that all those metrics are in fact tracking to our goals.
Yes that makes sense.
Just lastly, I was hoping you.
You might be able to pass along what you are hearing from other Oems aside from Volkswagen on the developments.
Since you've made them public.
Some of them seem to still be very focused on silicon anodes.
With conventional separators intellectually.
Are they conveying that thats kind of a temporary solution or are you hearing more interest from from others at this point.
I mean, what we're doing is exactly that that people 30 silicon is here today and has been here frankly for them for awhile.
Sure.
One thing you said.
Point, so why is that.
<unk> is here today. So there is always not to use it but I think there was out.
Of the people that we've spoken to you. There is general agreement lithium metal is the endgame in fact those are some of the words that we hear from them directly because you can't have it theoretically higher energy density or specific energy.
Than pure lithium metal the lithium metal doesn't have a hosted and any host materials. So all you have lithium atom is the same at the end of cycling back and forth assuming of course that we are looking itself. There is no excess lithium in there to help the new creation of that or.
So with Xerox recipient, the only lithium, Indiana as well as cycling back and forth.
Theres no silicon low carbon nothing else due to weigh you down I'll take up space now the second part of it simply is the reason why I think is a little bit.
Okay.
Nevertheless seem to get your arms around because.
Okay.
When people say silicon anode today.
We're really talking about is.
Is it some amount of silicon that's actually put into a car bandwidth. So it's a carbon anode with some level of silicon and it's never 100% pure sort of kind of the reason for that is as you I'm sure milk is a pure silicon absorbs.
A lot of lithium and expands.
Accurate for roughly speaking and then contract again.
It goes out as a solid discharge so they'll be in charge and discharge lithium is going to be expanding and contracting like a sponge talking with lithium in silicon is extending certain funds that we have lithium and ready to go and over repeatedly cycling that silicon pulverizing itself resulted in.
And a loss of capacity so the only way to prevent that let people come up with is to have a small amount of silicon and the carbon anodes.
And so there is a direct trade off.
With silicon advocacy, how much silicon you have which corresponds to energy density.
And you cycle, which was also the publication of that sort of thing so.
When people say silicon.
Important as well how much silica now you're talking about because 100% focused solution.
You noted that Sean.
Any kind of decent cycle life and this is one of the unfortunate one of the things that sometimes.
Hello.
Not reported.
In a way that is easy to understand companies some companies on the silicon side with sometimes report data will show energy density.
<unk> with a higher amount of silicon in it and.
And then they will show a cycle life slide with a lower amount of looking at it.
At least.
Leader.
Uncertainty as to whether it's the same sell or not.
It's important to kind of be able to ask those questions. So they understand.
So the net of it is it is it yes, the Oems that were talking to or looking at silicon as.
And there will be a step towards.
Towards the end game, but the pure nickel.
Lithium anodes if that could be done obviously, we haven't yet shipped them pure lithium cells to put in their cars.
<unk>.
If we do that then we see.
We expect to see very strong interest in that from multiple Oems as it goes.
We continue to use silicon anodes.
Great. Thanks.
Thanks Rod.
Your next question is from the line of Martin Delaney with Goldman Sachs.
Yes, good afternoon, and thanks very much for taking the questions maybe first to follow up on that last question. The shareholder letter talks about continued strong inbound interest from multiple perspective customers could you elaborate any more on that in terms of how the inbound interest. The company is currently maybe compares to.
How it was as would be the last time, we spoke 90 days ago.
It may take in order to win an additional customer beyond BW.
Yes.
Hey, Mark Thanks for the question, we obviously can't comment on any deals that aren't announced but we have said that there has been a lot of interest from a lot of players.
Since we announced.
That issue because we also in December since we announced our Q1 earnings call with the multi year results.
We have seen.
Continued to increase.
Interest book.
So that the.
The level of interest.
Mount of interest because of the number of players out there.
In our technology solution.
And then in Canada right now.
We really expect to be so.
Apply constrained in terms of both near term.
Delivery of test cells to these Oems as well as.
As all of them.
The prototype samples that will come off of our <unk> grew tired line, we did as you know.
Decided to expand the kyocera pipeline to more than double its capacity that was a key part of the reason to do a follow on offering last quarter, but even with that added capacity.
We expect there will be an allocation.
Which is a good problem to have in some sense.
At scale.
Yes.
Other than that we.
We can't serve everybody's needs.
The reality is it Tim.
<unk>.
Sure.
As a company that still.
Emerging.
We won't have the management bandwidth to have too many customers.
Because of our ability to support them. So we're going to have to pick.
Formula with key partners anyway, but in terms of the amount of interest received I would say it's.
It's very broad as you would expect I mean, if you have a technology that.
Well.
The kind of features we are talking about higher energy density and the ability to charge more quickly.
And.
Some of the safety benefits of a solid state operator.
And the second life that we're talking about then why wouldn't it be attractive.
So our key challenge really is delivering.
So all of these plays.
To try to give.
It gives them what they need and you end up really prioritizing the ones that we think will be the best fits for us what we're doing.
That's helpful. Thanks, and second question was trying to better understand the comment.
In the shareholder letter it talks about targeting commercial production in 2024 to 2025 timeframe and I'm, hoping to understand how that compares to the.
The analyst day presentation, showing about a.
A quarter of a gigawatt hour being shipped in 2024, and I think that was pretty early production.
Maybe there is no change.
Just trying to better understand the current rating compared to what had been previously articulated on our financial plan. Thank you.
You've pretty much articulated well.
You look at the analyst presentation. The model that we have there so relatively small revenue in 'twenty four ramping up in 'twenty five and that's what we're referring to when we say 24 to 25 time frame.
Okay. Thank you.
Yes.
Your next question is from the line of Ben <unk> with Baird.
Okay. Thank you guys.
So if you do a very good job.
So for us it's very complicated.
What are your people.
You said something about the cells.
Wrapping up.
They are refractory to 18 to 24 months.
Was wondering just how the differences.
The form factor.
So.
From a sell through a battery put that towards Pat.
And what kind of equipment that takes.
Ed.
Right.
I expect this.
Assume that you did.
Diligence with VW, a belt that step taking all of those.
Core breakfast sales. Thank you.
Two a pack, but if you could just maybe explain a little bit more broad could make it.
Sure sure Mike.
Yes.
No absolutely a great question, Ben So a couple of points better context before I can answer the question.
As of the factory itself.
Much of the tools that go into the factory or actually is going to be very similar to what goes into a lithium ion commercial package. So example, the capital line will be virtually the same.
It's going to be Catholic quarters from the same types of suppliers.
The cathode.
It is material.
Would be very similar to what's already used in today's deck.
Or do you have any duration of lithium ion batteries.
<unk> line as you know doesn't exist because there is no silicon low carbon not even an extra day of lithium anode acuity as we're looking at other forms Tim since you were the first to actually we'll keep the same catheter minded we eliminate the add online only difference then is it.
The conventional battery buys sub orders from several of our suppliers, we make our own shipyard. However, even there we would make us a better using tools that are that are scalable and continuously dementia. So with a two step process of making a separately. The first step is the casting process very similar to what's used.
Which is for Kathryn coatings.
Obviously, the scale of the tools and the second step is the heat treatment, but.
But that too is a continuous flow through treatment two awards.
Things are going through his conveyor belt and being handled.
Continuously fashion, so they're both as gayla processes.
The second.
Part of the question was how does the battery or the battery pack plus it's difficult to talk about this so.
And Luckily.
So when we started the company, we actually thought we might end up making both cells and packs NUCYNTA.
<unk> realized a couple of things one is that making sales as harsh.
So we said we wanted to focus on sales.
I'll take on additional.
Task beyond that led the pack, but secondly, we also found that the Oems, who we're talking to very much wanted to control the pack themselves because the pack is an integral part of the vehicle design itself.
The weighted very tightly mechanically thermally electrically via software so they bring us other package as a part of the club.
Nice.
The nice thing about making cells earlier, it sounds like a very simple interface side of the two terminal device.
Not a lot of.
The.
A lot of other complexity beyond it and so.
But we make cells, it's easy to head off to the OEM. The OEM is the one who makes tax so really our only responsibility is the design phase to make sure that we communicate.
<unk>.
The.
External behavior of the cell that means it's electrical interface the formal behavior.
The.
Yes.
The interface of the vehicle, which is the BNS and so on but.
But that's all we do have the wacky Bolivia parts of cells. So we just never sell to them.
They have engineered attacks that can accept ourselves and build and build it for Pat.
I guess just to round that cross sell so somewhat already.
Got you.
So youre part of it.
<unk>.
Right to match the cells.
Next well, but you do what's bigger.
Yes.
Actually the way it works is it.
It's a collaboration so the OEM tells us what the module and pack looks like and what kind of cells would fit that module and pack and redesign itself.
Excited to fit into that module and pack with minimal change in.
In fact.
But this is why.
When people ask me so how many layers of yourself.
We saved the actual share count depends on the particular OEM because every OEM has a slightly different.
We think this is quite different module and pack architecture, but we absolutely.
Modify our cell designs, so when I talked about the commercially relevant form factors being roughly the size of a deck of cards.
And when I say roughly is because the precise dimensions.
It may vary by OEM.
Order to more cleanly fit into there the module and pack.
Got it that's very helpful. Bob Congrats on a great.
Marty.
Good.
Could you talk maybe about you've mentioned BW.
I think the milestones.
The report.
We're housekeeping is there another milestone that triggers for capital injection.
Well, yes. So the answer is that particular milestone was set back.
Roughly a year ago, when we entered into our series F.
Remember this is before obviously, we are a public company. We're so proud of the <unk>.
Company and they were participating in private round that we were doing at the time.
And they have committed to invest $200 million.
First and this is of course COVID-19 had already started and so.
The automotive Oems have seen a significant drop off in there.
Revenues and cash flows and they had requested the idea of having a.
Two tranche investment.
Roche tranche, one will be in December with no COVID-19 conditions with simply a time delay to allow them to manage COVID-19 impacts in the second tranche.
They wanted to have that tied to what they thought was a really significant milestone on the path to commercialization and that milestone as we report in our shareholder letter.
To do with a specific form factor.
Specific test conditions in the form factor there was important because thats specified near production.
Thicknesses and areas for the separated itself. So that gives us confidence that in fact, we can make the separate us in the right level of thickness to be commercially viable and achieve our goals and then on the on the contest conditions with respected by the specific test commissions relative to temperature and lower power and <unk>.
Number of cycles, and so we were very pleased when they sell it met all those conditions are met.
This unlocks a 10 million dollar investment that was committed to a year ago.
But now that Thats fully funded so.
The only further.
Cash coming in from VW is going to be related to putting in place. This joint venture that we've talked about in the past.
We are committed to undisclosed sum.
To fund.
Our 50% share.
The first.
Production plants that were doing in this JV.
Got it thank you very much.
Terrific. Thank you thanks, Larry appreciate the questions.
Okay.
So next question is from the line.
Yes.
Joseph Spak.
With RBC capital markets.
Thank you and good afternoon.
Doug It's clearly good news on the larger format for players sell test I was just curious, though like does this one test or like how many four layer cell tests, where diamond and I guess related like I know the first.
So.
<unk> production sales, but how difficult or what are the yields to sort of get the larger cells for the customer.
Yes. Thanks for the question. So yes. This is definitely good news because if you.
Pointed out in the last lesson install we reported 40 ourselves, but because we didn't have the capacity we made them.
30 by 30 millimeter form factors, which is somewhat smaller than this.
<unk> hundred 85 millimeter mercury relevant for packaging kind of a playing card size.
So the question was okay, great. We can make the more than 30 by 34 Becker what happens when we scaled up to the full.
Playing card size form factor will they still work our new problems.
So.
What we reported the data you see in the slide show of the matter is in fact that.
When we made them in multilayer cells and this is more than once that always makes that was in batches and put them on tests in batches.
See the yields that are 100% so when you make the cells.
There are some sales that come.
Don't make it out of the manufacturing process.
<unk>.
One's that we deem to be good cells.
We see very good performance.
In terms of the cycle I think capacity is potentially so the slides are you seeing that.
It's hard to read because they don't have a grid that background grid on the slide but.
But you see the decider approaching 500 cycles now.
Around 90% capacity retention, which means if they continue on and.
In this fashion.
Over 1000 cycles.
80% in the full 70 to 85 millimeter size poorly ourselves. So that's that's definitely.
New news and it's good news because it means that.
When you get to what we showed last time is when you Scott for narrows up together.
You don't adversely impact cycle life and now what we're showing is when we increase the area of those four layers, we don't impact the cycle life with capacity retention and those are the key questions that we had was.
Are there.
Strange interaction effects. So that you have larger area does that does.
Does that create a bigger opportunity for problems to creep in and so on.
This data shows that it is in fact possible to make this call ourselves and have them perform.
Pretty well relative to the cycle life in capacity extension.
These tests are being done.
At <unk>.
Aggressive rates of power so one hour charge in one hour discharge.
We recycle that testing is not done at those rates as it could be done that still achieves a three hour charge and discharge.
This is more like again, what I would chart means discharging a full multi hundred miles which car.
Alright, so thats hundreds of miles an hour.
And then you also recharging it at a Supercharging and then now as opposed to annual garage overnight.
And then.
This is essentially about a 25 degrees Celsius, which is.
Basically when temperature.
Which again is something that isn't typically seen in software systems. So we're actually pretty wasn't very pleased with the performance that we're seeing here again, we're very careful always emphasize it.
We hit a milestone that it's a milestone there is more work to be done right. We got to get to the eight to 10 of ourselves.
The question that got asked.
Continued increase in <unk>.
<unk>.
Uniformity and yield and so on so there's a lot of.
Nothing to be done, but nonetheless, we're very pleased that we have for their full sized cells working this early in the year because that gives us confidence that we.
Ken.
We have a real shot of hitting the eight to 10 years or so by year end and if we hit that goal and that would give us.
With living wage with confidence that we can make a multi layer.
Commercially relevant form factor prototypes to deliver to Oems to test in 2022 and at that point the risk adjustment more than what I'm talking about this I would say that the other key than Boston.
'twenty three we'll have a higher volume of sales in the 200 that we felt the year building off of our tier three.
The pilot line that will be yet another important risk reduction step because that's the point at which those sales will go into real cars.
<unk> dose these three or four milestones before layer.
Foreign Air full size. So the eight to 10 their full sized sale by year end, the multi doesn't blur full size. So sometime in 'twenty two and then the hundreds of thousands of full sized dozens of layers worth of sales and 23 that will go into their cars.
Every one of those handful of milestones represents sort of a step function drop at risk.
That we feel it.
Really.
The story that much more exciting so we're careful.
Communicate both the results here and also the upcoming milestones.
But every time when as milestones as we have today.
I think we feel.
We feel.
Increasing confidence that.
But.
We remain on track towards our long term goals and Thats really.
Although we can do is focus on execution.
We believe that if we can execute the value proposition is so compelling and the customer interest is so strong.
We're going to end up.
Really making a significant effect on the <unk>.
Sorry.
And there are no further questions at this time do you have any closing remarks.
I just wanted to thank everybody for making time to join US today I think that as you.
On the call and I assure you that we're pleased with the results that we would hit so far in terms of.
Before theyre selling what I just spoke about the zero pressure so the customer interest that we continue to see.
The momentum that we have with our manufacturing lines secured the <unk> facility that will start to be turned up later on this year.
Again, we're going to keep focusing on execution.
We believe that if we keep executing that we will achieve our.
<unk> is up.
So we're making an impact in this industry are helping to make a dent on missions.
Of course, creating a lot of value.
And with that I want to thank you for joining.
In the next quarter.
That does conclude today's conference. Thank you for participating you may now disconnect.