Q1 2021 Quantumscape Corp Earnings Call

Good day and welcome to Quantum's Capes first quarter 2021 earnings Conference call, John Seeger, Quantum's Capes head of Investor Relations you May begin your conference.

Thank you operator.

Soon 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 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.

Including uncertainties posed by the difficulty in predicting future outcomes.

Joining us today will be granted Profounder, CEO and chairman, Jack <unk>, and our CFO, Kevin Hetrick Sandeep 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 <unk>.

Thanks, John.

Welcome to our earnings call for the first quarter of 2021 for.

Earlier today, we probably still average 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.

We completed our BW milestone, which requires that we deliver to BW co testing in their lab in Germany sales of a specific form factor and performance level for.

From factor consisted of newer production intent separately thickness in area.

And the performance level required that the sales operated pre determined rates of tower 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 to 85 millimeter for Patrick 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 with the sales continuing to recycle.

These results from for now commercially relevant area. So indicate we are on track to meet our eight to 10 day or sell milestone by year end, followed by prototype samples and commercially relevant form factor containing dozens of layers by 2022.

We also report today data from testing of ourselves with zero externally applied pressure in other words, one atmosphere of total pressure.

Coincide sales.

This is noteworthy because other than solid state lithium metal efforts that we are aware of have generally required pressure for cycle.

Over delivering very high pressures at the consolidated systems require adds cost and complexity to the system.

As the data in our shareholder letter, which shows the sales achieved over 1000 cycles with good capacity intention even with zero applied pressure.

We did this work in quite inside sales, which is a platform. We use for early research to outcomes and while there is more work to be done to replicate themselves and Roger yourselves.

Excuse me, which resulted in the form factor is an important first step towards introducing accountability into log yourselves.

We believe that being able to manufacture cells that requires zero applied pressure it enable us to address markets beyond automotive such as consumer electronics, we're applying pressure in practical really size can change and while not necessarily for automotive applications could simplify automotive module and pack design in the future.

On the manufacturing from last month, we signed a new long term lease on an 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 for the quarter of which approximately half will be used to fund the expansion of <unk> zero to over 200000 tons per year.

Additional capital from the equity offering will be applied to fund the build out of <unk>, our joint venture with VW, which will target commercial production from the 2020 for 2025 time frame.

We've now accomplished two of the for previously announced milestones for 2021, VW milestone and securing our facility for kyocera.

And I have made strong progress towards the third.

Volume will be there so from the commercial development for Patrick.

Our remaining stated milestones for the year are the complete the development and testing of the formula promotional levels about yourselves and then to build eight to 10 layer for sites battery sales.

A few words of historical context.

Which Tim and I started the company over 10 years ago for division are enabling the next generation of electric vehicles.

We believe that if we could develop a solid state batteries.

We could facilitate the transformation of the automotive industry from 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 for this goal for weather the ups and downs of the development process.

We ended up taking US 10 years with deep experimentation heavy material, we can develop ourselves based operator and the associated scale manufacturing processes.

This single minded focus has served 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 I remain optimistic about our ability to execute on this vision and achieve our goals.

Given this context with the exception of satisfying tax obligations income.

<unk> cannot sell any of them pipelines get holdings at least until we had delivered the prototypes and then commercially relevant for Patrick to Volkswagen.

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 to our CFO, Kevin Patrik to say a few words about our financial performance.

Put it up for Q&A Kevin.

Thank you Doug.

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 for them.

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.

The aforementioned capacity increase for <unk> zero enables us to provide more prototype sales to VW other automotive Oems and prospective customers in other industries.

We intend that cures for euro will establish a mass manufacturing system blueprint learnings from the larger kiosk zero capacity, we expect to help further derisk, our Qs one scale up.

With respect to cash we 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.

Net 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.

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 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.

For the technical milestone associated with Dws investment wasn't that in the first quarter 2021, the investment closed after quarter end following the expiration of the applicable regulatory waiting period.

Consequently, 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 similar.

Similarly cash subsequently received from VW 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 youre separate or can resist and growth.

Sure John So the best tests per day might resistance is actually the cycle lifestyle. How long can you cycle under Uncompromised test conditions, meaning high power density and broad range of temperatures for.

For a single layer. So we've shown over a thousand cycles for over 80% capacity attention 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. She got reclamation.

In addition to that test.

One additional test to determine the fundamental capability of our solid state material.

Hedging for the lateral test, where we charge at a given rate for given the amount of charge and keep increasingly wait to find out how much stress the material can take.

But then it will be reporting on a battery showcase showed the solstice epitope would survive.

100 million apps within the square meters.

The tests that have given us confidence that our materials 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 for cyclists 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 sales, which is the commercial relevant current taxes at 30 degrees, which is named room temperature at one fee rates, which means a 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.

100, Remodels arrangement hour and Supercharging it to recharge the battery pack in one hour. In addition to the standard set of data. We report additional data to more fully characterize the performance of the cell.

Sometimes report data at two of our key which is three hour charge and discharge rates as well as higher and lower temperatures to reflect conditions. It for sale might see in the real world for the latter test.

We used 45 degrees and you mentioned for example, we've started and Thats from effect feedback from the automotive Oems that we're working with the fast charge. It's most likely to occur when we were just coming off the highway and the battery pack is likely already self heating demand attended retail, but we view. It is also very important to show how this outperforms and colder temperatures when lots of key required.

For the automotive application, while that many solid for systems actually can't run well at these cold temperatures. So.

That data is an important indication of real world applicability.

So the summary is that we try to test the sales in the standard configuration wherever possible and where we add additional tests to provide a better sense for how the sales performed well that incremental data beyond the base that that'd be great.

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 for some of them are scaling up first and making large numbers of sales on large scale manufacturing equipment before they've shown cycle Ais data that meets the automotive requirements of 800 cycle that more than 80% capacity.

<unk> when their argument being that scaling up is actually the most difficult part of the solid day approach, whereas clients Cape appears to be taking the opposite of that.

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.

The main ones that are populating user polymers sulphide and oxide alternative approaches have had issues on the most fundamental one being an inability to prevent dendritic cell system that can't stop standby expectedly will never be usable in of your car.

Fortunately <unk> 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.

So the purchases all the end up working at elevated temperatures at 60, 70, andas for low rates for power like <unk>.

It makes it impractical for real automotive applications or how big a sub limit for how much capacity it doesn't with vaccines.

Our view these approaches represent technological debit.

One of the two in particular, that's been used by a number of competitors there.

Talking about scaling up is it felt by families materials.

Unfortunately, besides the dendrite issue, we just discussed.

All lines have an additional sales issue, which is hydrogen sulfide formation. So how do you stop either HCS is an extremely toxic gas performs upon contact of sulfides ordinary air which contained water at the water reacts with the sulfide form issues and a quick Wikipedia search will tell you that HOS.

<unk> had a few hundred parts per million.

So it's a very soon to share that mitigates all from the sulfide based approaches.

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 Celsius.

Having shown these data in December we've now turned our attention for scaling up so one last point I want to make regarding fundamental Tennessee versus manufacturing scale.

Some people say building a prototype that we manufacture in the card.

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 billow 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 nontrivial, even one Mr Park and called for line to stop.

And if we're talking about batteries in net.

I would say the chemistry is really really hard part and as evidence I'd point to how rare. It is OTC fundamental new chemistry over the last few decades that have entered commercial deployment.

And in particular to export to the 40 years of work that have gone into solid state materials with very little commercial success to show for all of that work.

By contrast, many companies in that space have shown that can build battery gig effecting in 18 to 24 months.

Because there are no new laws of physics required to build value batteries for this reason we chose to focus first on confirming that we have had a material are solid base operations that could cycle under uncompromised test conditions without handwriting.

We've shown that we've turned off for this to scaling up for layer count and production capacity of engineering manufacturing mines. We believe this is the only path to making a commercially viable chemistry portion of their chemistry works and then focus on scaling up for the production battery not the other way around.

Okay, great. Thanks for the thorough assets are.

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.

Well, we have said is that capex spend on our new facility accounts for approximately half the $130 million for $160 million Capex spend that we estimate in 2021.

Expect a similar magnitude of Capex spend on the new facility in 2022.

Two zero will be higher in terms of cost per unit capacity than our subsequent Q1 facility.

There are a few reasons for this.

The first 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 is for our kiosk one facility and second it gives us one we will feature larger scale tools that offer greater economies of.

<unk>.

We believe for long term capex per unit revenue targets remain achievable.

We have the benefit of eliminating an unrelated production equipment as ourselves our anode free is manufactured.

We plan to install in Q zero same type of continuous flow 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 for 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.

First question is from the line of Adam Jonas.

Hey, everybody.

So first a question about sales 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 I just wanted 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 am curious how much how much that is.

And whether the amount of pressure matters in terms of form factor or cost.

Yes, I'd say so.

The sales that we deal with Davita.

We're under the standards pressure that we've been reporting ourselves at.

And so on.

Basically if you look at all the data, we published and will be reported the pressure that the sales are under right.

No.

In the automotive application delivering pressure as well.

This margin pressure is not an issue because the sales go into modules and module is going to tax and we can.

Engineered systems that can deliver with modest margin pressure without.

Significantly increasing the complexity of the design, it's when you get into incredibly high pressures like 10 atmospheres or above that.

The system design becomes really complex and potentially extensive the 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's an industry first.

Generally speaking.

So all for systems do require pressure to maintain interfacial resistance.

Good levels.

And but the benefit of a pressure.

Is that you can.

Make the system applicable to applications, where.

We 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.

For the mechanism.

The big benefit of that.

Zero questionnaire designed by Universal Force I mean zero extra moving apply pressure there's still this provision.

Had one atmosphere of natural pressure on it for the.

The benefit of our approach is that 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 if you do it for automotive, although it's not required and that's the key point, we were 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 for a low interest loans for example, and 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 that where you are how you are how you're gauging that landscape and 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 will just preface that by credit was in general there are a.

A few key sources of capital for a company like ours, a lot of courses the capital that we've already got from private investors and public investors that's already on the balance sheet.

Obviously, similar capital available to public markets and feature the second source.

This is of course partnerships with the key automotive Oems.

What we're doing is so strategic to the automotive sector.

That we're seeing.

Significant interest on the part of the automotive Oems.

<unk>.

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.

Other Oems.

<unk>.

Find the seasonality to be equally significant and so that's another source of capital is drawn in order to Oems.

The third source of capital is in fact.

Government incentives in.

Both both at the federal level and the regional level and this is not just here in the U S. But in many parts of the world.

Recognize how fundamental transformation of a very important industry, but we're in the middle of.

They recognize that having a domestic battery industry.

Could end up being a critical part of maintaining the jobs base as well as the technological base.

Obviously, Germany is one of the major manufacturers as well.

Cars.

This particularly concerned about this but in general in the EU. There is lots of countries like the U S. Under the current administration has since arriving 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 Jacob's comments. 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 <unk> played out.

The second point I'd make is that we haven't assumed any of this in any of our historical projections. So.

Yes.

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.

The strategic jobs created that our indirect as well both in the tool tool supply as well as in.

The rest of the.

The supply chain as well.

Thanks very much.

Thanks, Adam.

Okay.

Your next question is from the line of Gabe down for the Cowen.

Hey afternoon, guys. Thanks for all the prepared remarks and the Q&A.

I guess I was curious if we could just go back to the for layer sound about 85.

Yes.

The pressure requirement and how is that relative to your expectations and I guess once you start.

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 one.

Do you think that's a good point it could trend down throughout the rest of this year.

Yes.

Our experience has been so concurrently apply as you know.

A single digit number of atmospheres of pressure.

D.

But when you apply pressure to a stack of cells that pressure is 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. So.

It's not the case that for example, 10 layers requires 10 times of pressure.

That's point number one and point of materials and the reason why we released data on day zero pressure results.

As to indicate that in fact, the team is making great progress.

In an area, where there hasnt been a lot of progress historically, which is cycling lithium metal anodes without the need for any external price 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 atmosphere is.

As a design that can be engineered into automotive applications and we think it's a simpler to volume did not require any pressure. So we will move in that direction that we've shown.

Proof of concept with these initial deals like yourselves.

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 day, I mentioned go into uniform so route.

For prismatic approach could you for.

For I guess 80 per cent of the needs could you maybe just talk about your.

And our expectation around cell design, and whether or not you could go from pass for 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 there is that.

When we say commercially relevant for Vectra, we mean, a design that can in fact be engineered into a module and pack at the carnival and the key day rates to have enough players in the energy density.

Given for bankers.

For factors too small then.

Then what happens is that the packaging and inactive materials start to dominate the sell and the energy density.

It was per year drops.

So as we've mentioned on previous calls.

We believe the deco size a deck of cards side, one factor that we've been talking about.

Dozens of layers it doesn't.

It does in fact allow us to hit.

<unk> thousand one hour per meter target that we have.

And so with that.

Is it being commercially relevant to Oems and through the gross margin.

Right that there is a longer term desire.

On the part of not only BW, but many other Oems to move to a point that the reps.

From with wider than the debit card side for Petro lease that we've shown.

And Thats something that we will address it.

For future, but for now our.

Current flow Becker target for.

For most of the relevant designs and remains roughly speaking that deck of cards style for.

Because.

In our models that can that get us to the 1000 hour per liter.

And we definitely target.

There isn't a need to.

Try to go to larger larger form factors, which then require.

Additional development to two commercialized.

Got it thanks for the thanks, everyone.

Okay appreciate it.

Your next question is from the line of Roger <unk> with Wolfe Research.

Hi, everybody.

Just first question just.

Clarification that the zero pressure cell that you described that does not have any liquid and it <unk>.

Hey, Rod.

Good question I wanted to clarify.

Glad you asked for 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 areas.

With a dense material.

Unlike todays sales, which have a force.

Separately, we made out of a typically.

Organic material like polypropylene polyolefin materials.

Those materials don't conduct by himself.

<unk> can't move through those kinds of plastics. So instead, what they do is they have holes in them and those holes are flooded with the liquid electrolyte.

Liquid accurate floods, the cathode the separator as well as the carbon particles in the handle so clearly everywhere the zone.

Whereas in solid state designed like the one we're talking about we eliminate the for typically replace it with its pure denser Amit Theres no hold in it and so the movie lineup as we move through the lattice of the atomic lattice of the separate from itself and then second point between the stat that solid separate here and the pure metallic lithium.

There is no liquid.

So that's a direct.

Interface, a solid for solid.

In our cathode there is an organic material, which consists of our polymer added liquid.

Net capital.

The cap rate is limited to the catheter and because we have this for.

That makes up later that liquid doesn't.

It doesn't actually make its way for the lithium metal if it did.

You would actually see the cycle life stage.

Much more quickly than what youre seeing with ourselves so that sales we've shown.

As you know thousands cycles.

Bob.

Cycle life.

Well north of 80% in many cases, 90%.

Past due attention so significantly above the spec.

And that we don't believe it would be possible.

The use of liquid zone because liquids.

Our loan to react with metallic taken this has been the whole problem with liquid day 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 a buildup of reaction site products that raise the impedance or resistance of the sales and as a result, the sales cycle life starts to fade within three or 400 cycles.

80% and starts dropping off so.

For the key to southwest zone.

Is that <unk> separated it does not.

Have any holes in it to allow these 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. That's helpful. Thanks for clarifying that.

You made a comment in.

<unk> deep about the development tasks ahead.

Couple of them, obviously related to manufacturing like 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 processing and you went through a similar process for my last company, which was looking for optical photonic integrated semiconductor chip.

And.

Yield is one of those things, which is continuing to increase as long as we learn more about the process and how to get into deformity, how to have fewer defects fuel contaminants.

The lab assets or.

Youll strikes.

Increased throughput as a function of.

All 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 soldier system is.

As one that uses continuous flow processes. So those two steps from the manufacturing process.

Step one is to make.

What we call the green taped to cash the material.

Denim continues for quarters.

Not too different from what's done for today's Catholic chosen and battery factories in the second step is the heat treatment.

And that step two is a continuous flow process.

Just wanted to.

Can you scale heat treat from tool.

Net ended processing those at the right with the right.

Heat profile.

So those are the kinds of things that we're doing.

And we keep doing it and the 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.

That makes sense and 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.

For instance, 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 hearing is exactly that that people 30 silicon is here today and had been here frankly for them for awhile.

So.

One thing is a couple of points one is it.

Silicon is here today, so there's always lots of music.

But I think there was out.

The people that we've spoken to there is general agreement lithium metal is the end game. In fact, those are some of the words that we hear from them directly because you can't have it theoretically higher energy.

For the year specific energy than pure lithium negative effects of lithium metal doesn't have the hosted and any host materials. So all you have lithium atom is the same lithium cycling back and forth, assuming we force it to zero lithium sales. So there is no excess lithium in there to help the new creation of that lithium anodes.

So with Xerox recipient, the only lithium, Indiana as well as cycling back and forth.

Theres no silicon low carbon nothing else too to weigh you down I'll take up space now the second part of the simple reason why its income is a little bit.

Okay.

Many of his team to get your arms around because.

When people for Silicon anode today, what they're really talking about is is.

Some amount of silicon that can be put into a carbon atom carbon anode with some level of silicon and it's never 100% fuel for the kind of the reason for that is as you I'm sure know.

A pure silicon absorbs.

A lot of lithium and expands.

Factor for roughly speaking and then contract again.

It goes out because of some of its discharge. So they are in charge and discharge for lithium is going to be expanding and contracting like a sponge talking with lithium in silicon.

Extending our disciplined so if we have lithium and ready to go and over repeated the recycling that silicon pulverizing itself, resulting in them.

A loss of capacity so the only way to prevent that net people come up with is to have a small amount of silicon and the carbon anodes.

And so there is a direct tradeoff with silicon alloys that theme, how much silicon you have which corresponds to energy density.

And you cycle, which has also been with total relation of that sort of thing so.

People say silicon, it's important to ask how much silicon now you're talking about.

There is 100% focused solution to our knowledge none of it's Sean.

If you have any kind of a decent cycle life and this is one of the unfortunate one of the things that sometimes.

Yes.

Not reported.

In a way that's easy to understand companies some companies from a circumcised, sometimes report data will show energy density.

Our silicon anode with a higher amount of silicon in it and then they will show a cycle like slide with a lower amount is looking at it and it leaves.

Peter.

Uncertain 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 what's been.

So for the net of it is it is it yes, the Oems that were talking to you all looking at silicon as.

And there will be a step towards.

Towards the end game of appeal.

Monarch lithium anodes, if that could be done obviously, we haven't yet shipped them pure lithium sales to put in their cars.

Yes.

If we do that then we see.

We expect to see very strong interest in that from for multiple Oems.

We continue to use silicon anodes.

Great. Thanks for your team.

Thanks, a lot.

Your next question is from the line of Martin Delaney with Goldman Sachs.

Yes, good afternoon, and thanks for thanks for taking the questions maybe first to follow up on that last question. The shareholder letter. It talks about continued strong inbound interest from multiple perspective customers could you elaborate any more on that in terms of how the inbound interest for companies and currently maybe compares to.

How it was as of day the last day of time, we spoke about 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 any deals that aren't announced but we have said that there's 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.

For that.

The level of interest and the <unk>.

<unk>.

In our technology solution.

And then in Canada right now.

We really expect to be.

Supply constrained in terms of both near term.

Delivery of test sales to these Oems as well as.

As always.

The prototype samples that will come off of our <unk> pre pipeline, we did as well.

Decided to expand the kyocera pipeline 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.

It's still.

Yes.

I mean that we.

We can't serve everybody's needs.

The reality Mark is EBITDA.

<unk>.

Sure.

As a as a company that still.

Emerging.

We won't have the management bandwidth to have too many.

Customers.

So the ability to support them. So we're going to have to pick from.

Formula with key partners anyway, but in terms of the amount of interest we're seeing.

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 separately.

And the second life that we're talking about then why wouldn't it be attractive so I <unk>.

Key challenge really is delivering.

Net sales so all of these players.

To try to.

Give them, what they need and ride 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.

And net shareholder letter it talks about targeting commercial production in the 2024 to 2025 timeframe and I'm, hoping to understand how that compares to the.

The analyst day presentation showing about.

For 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, yes, I think you've pretty much articulated well.

If you look at the analyst presentation. The model that we have there showed relatively small revenue in 'twenty for ramping up from 25.

What we're referring to when we say 24 to 25 timeframe.

Okay. Thank you.

Yes.

Your next question is from the line of Ben <unk> with Baird.

Okay. Thank you guys.

So I'll do a very good.

Sure.

<unk> growth for us.

It's very complicated.

What are your people.

Okay.

You said something about the sales.

Wrapping up.

Refractory to 18 to 24 months and I was wondering how the differences.

The form factor.

No.

<unk>.

From a sell through a battery put that towards path.

And what kind of equipment that takes.

For our.

So I expect this.

Assume that you did.

<unk> for VW, a belt that step taking all of those.

Super core breakfast sales.

Moving to a pack.

If you could just maybe explain a little bit more.

It could make it.

Surely share though for Walmart.

No absolutely a great question. So a couple points better context before I can answer the question.

In terms of the factory itself.

<unk>.

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 orders from the same types of suppliers.

Cathode active material will be very similar to what's already used in today's deck.

For the upcoming duration of lithium ion batteries. The anode line as you know it doesn't exist because there is no silicon no carbon not even an extra day of lithium on the anode acuity as we're looking at other forms and since you are the first chart should we will keep the same catheter minded we eliminate the anode line. The only difference then is it.

Conventional battery buys separators from separately suppliers, but we make our recipients however, even there we make us up there.

The casting process very similar to what's used for.

For Catharine <unk>.

Obviously, the scale of the tools and the second step is the history.

That too is a continuous flow from treatment two awards.

As related to his conveyor belt and being handled.

Continuous flow of assets, so they're both as gayla processes.

The second.

For the question is how does the the battery or the battery pack process different nacelle buy for so.

And Luckily.

So when we started the company, we actually thought we might end up making both sales and tax.

We since realized a couple of things one is that making sales as harsh.

So we felt we wanted to focus on sales.

I'll take on additional cash.

Cash 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.

It's integrated very tightly with mechanically thermally electrically via software so Dave I missed part of the package as a part of the car.

The nice thing about making sales earlier it sounds like a very simple interface.

Of the two terminal device.

Not a lot of.

The dialogue.

Other complexity beyond it.

But we make cells, it's easy to hand off for the OEM. The OEM is the one who makes tax so really our only responsibility is at the design phase to make sure that we communicate.

The.

The.

External behavior of the cell that means it's electrical interface the formal behavior.

The.

Yes.

The interface of the vehicles for the BNS zone, but but that's all we do have the accurate delivery of parts of sales. So we just need a ourselves for them.

They have engineered a pack that can accept those sales and build and build it for <unk>.

With them.

I guess just to round that cross sell so somewhat already.

<unk> revenue.

So youre part of it is already developing.

Right to match the sales.

For the next so that you do with bigger.

Yes.

Actually the way it works is it.

It's a collaboration so the OEM tells us what their module and pack looks like and what kind of sales would fit that module and pack and redesign of cell death.

Excited to fit into that module and pack with minimal change in fact.

But this is why.

When people ask us for how many layers under yourself, we saved the actual day account depends on the particular OEM because every OEM has a slightly different.

I think it's quite different module and pack architecture, but we absolutely.

Modify our cell designs, so when I talked about the commercially relevant for factory being roughly the size of a deck of cards.

Say roughly is <unk>.

The precise dimensions.

They may vary by OEM in order to more cleanly fit into their day module and pack.

Got it that's very helpful. Bob Congrats on a great.

Raise the money.

Good.

Could you talk maybe about you'd mentioned VW.

I think the milestones.

The report.

For housekeeping is there another milestone that triggers for capital injection.

Yes. So the answer is that particular milestone was set back.

Roughly a year ago, when we entered into our sales.

For women with emphasis before obviously, we are a public company. We're so proud of the company and they were participating in probably around what we're 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 from 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 share of leather.

Have 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 of the submission relative to temperature and laser power and <unk>.

Number of cycles and so we're very pleased from the sales net all of those conditions and that this unlocks a total made an investment that was committed to a year ago.

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 had committed an undisclosed sum.

To fund.

Our 50% share.

The first.

Production plants that were being initiated.

Got it thank you very much.

Terrific. Thank you. Thanks Lynn I appreciate the questions.

So next question is from the line of.

Joseph.

<unk> Pak.

With RBC capital markets.

Thank you and good afternoon.

Clearly good news on the larger format for players sell test.

Just curious, though like does this one test or like how many for layer cell tests for diamond and I guess related like.

Pre production sales, but how difficult or what are the yields I sort of get the larger sales for the customer.

Yes. Thanks for the question Joe. So yes. This is definitely good news because if you as you pointed out in the last on last earnings call, we reported for yourselves.

Because we didn't have the capacity we made them.

30 by 30 millimeter form factors, which is somewhat smaller than this.

70 to 85 millimeter mercury relevant for packaging kind of a playing card size. So.

So the question was okay, great. We can make them worthy 30 by 30 for Becker, what happens when we scaled up for the full.

Playing card size form factor will they still work our new problems Griffin.

So what we reported the data you see in the slide and the share of the matter is in fact that.

But when we made them in multilayer sales and this is more than once that we always make sales in batches and put them on tests in batches.

And obviously the yields that are 100% for when we make the sales.

Comes out that.

Don't make it out of the manufacturing process.

Of the ones that we deem to be good sales.

We see very good performance.

In terms of the cycle I think capacity is essentially zone. The slides are you seeing that.

It's hard to read because they don't have a grid that background grid on a slide but what you see with the size of approaching 500 cycles now with I think around 90% capacity retention, which means if they continue on.

In this fashion.

Over 1000 cycles and our sales.

80% in the full 70 day by day, there size for Les ourselves. So that's that's definitely.

New news and it's good news because it means that when you net so what we showed last time is when you Scott for NAV was up together.

Not adversely impact cyclists and now what we're showing is when we increase the area of those for layers, we don't impacted cycle adequate capacity retention and those are the key questions that we had with our.

Are there still.

Strange interaction effects. So that you have larger area does that does that create a big opportunity for problems to creep in and so on.

This data shows that it is in fact possible make these call ourselves and have them perform.

Pretty well relative to the cycle life and capacity attention.

These tests are being done at.

Aggressive rates of power so one hour charge in one hour discharge.

How do you cycle that testing is not done at those rates as it could be done net copt's, a three hour charge and discharge.

This is more like again, what I would chart means discharging a full multi hundred mile which car in and out of it right. So that's.

Hundreds of miles an hour.

And then you also recharging it at a supercharging and Theyre now as opposed to a yoga is overnight.

And then.

This is essentially debt free at 25 degrees Celsius, which is.

Basically room temperature.

Which again is something that isn't typically seen in Salisbury system. So we're actually pretty well actually very pleased with the performance that we're seeing here again, we're very careful always emphasize it.

Whenever we hit a milestone that but it's a milestone there is more work to be done we got to get to the eight to 10 day ourselves.

The question without asking for it.

The continued increase in <unk>.

Uniformity and yield and so on so there's a lot of them.

Looking to be done, but nonetheless, we're very pleased that we have for their full size sales working this early in the year.

That gives us confidence that we.

Sure.

Ken.

For the real shot of hitting for eight to 10 years or so by year end and if you hear that growth that would give us.

Living wage with confidence that we can make a multi layer.

For commercially relevant form factor prototypes.

To deliver to our Oems for test in 2022 and at that point.

Adjusted more than what I'm talking about this I would say that the ability than Boston is 2023.

A higher volume of sales from the 200000 sales year building off of our <unk> zero for 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 on test strength for those these three or four milestones before layer.

For the Air Force side, so the eight to 10 their full size sales by year end, the multi dozen layer for size. So sometime in 'twenty two and then the hundreds of thousands of full sized dozens of layers worth of sales in 2003 that will go into real cars.

Every one of those handful of milestones represents sort of a step function drop at risk that.

That we feel.

Really.

Make the story that much more exciting so we're careful too.

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.

That.

We remain on track towards our long term growth 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 accounts.

Really making this negative effect.

On the industry.

And there are no further questions at this time do you have any closing remarks.

I just want to thank everybody for making time to join US today I think that as you heard him on the <unk>.

And our sales that are we're pleased with the results that we've hit.

So far in terms of.

For Arizona 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 kyocera facility that will start to be turned up later on this year and again, we're going to keep focusing on execution and we believe that if we keep executing.

<unk> is up.

But we're making an impact for this industry and helping to make a dent on emissions and of course, creating a lot of value for them.

Investors and with that I want to thank you all for joining.

Talk to you next quarter.

That does conclude today's conference. Thank you for participating you may now disconnect.