Q2 2021 Quantumscape Corp Earnings Call

Yeah.

Great.

[music].

Good day and welcome to quantum escapes a second quarter 2021 earnings conference call.

John Steger acquaintance Scapes head of Investor Relations.

They begin.

Thank you operator, good afternoon, and thank you to everyone for joining quantification second quarter 2021 earnings.

Earnings Conference call.

To supplement today's discussion. Please go to our IR website, IR dot com Gamestop com to view our shareholder letter.

Before we begin I want to call your attention to the safe Harbor provision for forward looking statements are posted on our website and as part of our quarterly update.

Forward looking statements generally relate to future events.

Your financial or operating performance.

Our expectations and beliefs regarding these matters may not materialize.

Actual results and financial theories are subject to risks and uncertainties that could cause actual results to differ materially from those projected.

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 uncertainty.

The difficulty in predicting future outcomes.

Joining us today will be qualms caped, co founder CEO, and chairman, which I keep seeing and our CFO Kevin Patrik.

Sandeep will provide a strategic update on the.

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 J D.

Thanks, John.

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

Earlier today, we published our shareholder letter summarizing the major developments from the last quarter.

<unk>.

Briefly describe a few of the highlights here.

First and most significantly we are excited to report that we've now built and are currently testing our first 10, they ourselves and are commercially relevant form factor.

In the shareholder letter, we published preliminary data from our cycle life tests and early capacity retention.

And so I think performance remained similar to what we've shown foreseeable and poorly ourselves.

Our goal is to have 10 their sales by the end of 2021. So we are encouraged to have our first time their cells. This early.

To be more specific the development of <unk> has been the result of a number of concrete improvements.

2 are separate or manufacturing process.

Taken together these improvements resulted in a step change increase in both separately the quality and consistency.

And we baseline these improvements we expect positive knock on effects to accrue to our development process as we progressed through our manufacturing.

Roadmap.

As we've said since birth going public separator quality and consistency are key technical parameters and this step change improvement is an encouraging sign that our focus on this area is paying off.

In December 2020, we showed our first data on single lay ourself when in February we showed our first ordinary ourself.

To now be able to share an early look at full size tend to ourselves in July is very exciting to us and we believe that the rapid rate of progress to this point bodes well for our development plan.

Plans going forward.

Another important development, we made and tested our anodes III lithium metal sales with a low cost iron phosphate LSP cathode and confirmed that our chemistry and solid line is compatible with LLP.

We believe this demonstrates the commercial flexibility of our capital.

Gnostic solid state lithium metal platform, which allows us to extend our product offering to a broad spectrum of the automotive market.

In addition to these exciting technical results much of our focus this past quarter has been on installing high volume manufacturing and automation tools on our engineering line.

As a precursor.

The build out of our pre pilot towards zero facility.

Such high volume tube will allow us to further refine our manufacturing process reduce variability and feed our learn fast and iterate development process as we continue to work towards accomplishing our year end goals.

For example, we expect.

Our high volume continuous flow treatment equipment to improve separate our production throughput by an order of magnitude over the current process as well as the significantly improved the quality of our separated as a result of more uniform processing.

This is important as our tool is our team.

We've grown our company head.

20% over the last 90 days with a particular focus on attracting experienced high tech manufacturing professionals.

And many others. We are pleased to welcome Selena makeup hijacked from Panasonic and Tesla.

<unk> of manufacturing engineering, and fleet and patch for Micron Technology, Inc. In Ireland.

Count technologies as VP of manufacturing.

Our focus for the rest of 2021 is to build many more 10, they ourself to collect performance data and comprehensively characterize an optimized cell design.

In addition, we will continue working closely with both volume and other customers as.

We pushed towards next year's customer sampling targets.

Lastly, I'd like to take a moment to look at the bigger picture.

This last quarter has seen an incredible volume of electrification investments from automakers all over the world with a growing number of committed to phasing out combustion engines entirely this.

It comes as governments across the world are tightening restrictions on combustion engine vehicles and accelerating the pace at which automakers are required to switch to.

The EV market is seeing enormous growth in major markets and this growth looks set to continue over the short and long term.

But it's also important to keep in mind that <unk>.

<unk> sales are still less than 5% of all new car sold and in some ways. The first 5% is the easiest to address with current technology.

We believe that selling evs through the remaining 95% of car buyers will require batteries that are not just marginally better than today's standard with significantly better.

On key metrics, such as range charge time cost and safety.

We believe the automotive market is starting to appreciate that incremental progress in battery technology will ultimately be insufficient to meet the requirements of drivers necessitating step function improvements like those delivered through our analyst.

List lithium metal approach.

Although there are challenges ahead of us.

We're confident that we have the team resources and fundamental technology to overcome them and every major hurdle, we clear becomes a moat that strengthens our competitive position in the race to capture the next generation battery market.

In short we are encouraged by the results we see in this quarter and we are excited to continue our progress towards commercial deployment of our technology and.

And share more developments with our shareholders in the months ahead.

With that I'll hand, it over to our CFO, Kevin Hedrick to say a few words on our financial performance before we open it up.

For Q&A.

Kevin.

Thank you Jackie.

In the second quarter, our operating expenses were $50 million.

Excluding stock based compensation operating expenses were $38 million. This.

This level of spend was in line with our expectations entering the quarter.

The full year.

We expect cash operating expenses to be in the range of $130 million to $160 million consistent with our guidance from last quarter's earnings call.

Capex in the second quarter was approximately $30 million.

For the full year, we announced the capex tracking higher than previous guidance of $130 million to $160 million.

Primarily due to a pull forward of the timing of <unk> zero pre pilot manufacturing line spend from 2022 into 2021.

This reflects progress setting specifications engaging with vendors ordering equipment and advancing facility projects.

Our overall spend.

<unk> remains in line with our previous expectations.

Our plan to end this year with greater than 1.3 billion in liquidity also remains unchanged.

We will update Capex guidance for 2021, and the Q3 shareholder letter when timing on payments related to <unk> zero comes into clearer focus.

<unk> zero is a vital step in our growth.

<unk> zero, we plan to produce battery cells for R&D test cars in 2023 and to establish a mass manufacturing system blueprint.

Learning from <unk> zero, we believe will help de risk our <unk> scale up.

With respect to cash we spent 60.

$2 million on operations and Capex in the second quarter.

<unk> guidance for full year free cash flow burn in the Q3 shareholder letter.

Our company achieved progress on development and manufacturing, while maintaining a strong balance sheet.

We ended the second quarter with more than $1.5 billion.

63 and liquidity.

We continue to expect to exit 2021 with over 1.3 billion.

Sufficient capital, we believe to fully fund quantum escape through initial <unk> production and additionally contribute to the subsequent Qs 1 expansion.

Our GAAP net income for the quarter was.

$81 million, including the impact of $131 million and noncash fair value adjustment of the assumed common stock warrants.

Excluding this noncash adjustment to net loss for the quarter was approximately $50 million in line with expectations.

We're excited about the progress.

This quarter and look forward to the opportunities ahead.

We'd like to thank our investors for supporting our mission to commercialize our solid state lithium metal batteries and to help accelerate the mass market adoption of electric vehicles.

1 final comment regarding the recently announced public warrant redemption before passing back to John.

Of the $11.5 million public warrants originally issued most have already been exercised.

As of the recent redemption press release date, only approximately $1.5 million remain outstanding.

We believe redemption of the public warrants is an important step to further simplify and streamline our capital structure.

For more information. Please review our press release and 8-K filing on July 20, <unk> with that over to John John.

Okay. Thanks, Kevin will begin today's Q&A portion with a few questions. We've received from investors over the say app and in our IR Inbox or first question. If you had to convert a traditional.

<unk> lithium ion manufacturing facility to economy Cape facility, how would you do it how much of the cost savings <unk> versus building a new factory from scratch.

Yes, John the first thing I'd say is that given the demand for batteries that we're currently seeing and the supply constraints. No..1 is when you're talking about Repurposing factories current factory capacity will continue to be needed going.

Going forward and new factories will be built each year to meet the growing demand for our default plan will be to build new factories for Qs, 1 and Q2.

But if you did want to re purpose with demand factories. The main changes would be first we don't need an anode manufacturing line to 31 with the Nols, which will allow us to reuse annually.

Colors of Catholic coders, increasing the capacity of the line.

Without adding cost.

Second we can also we use existing stacker tools for prismatic cells to make ourselves.

And finally, we can simplify the formation areas since we don't have the need to form an <unk> Sci given we don't have an anode.

So we.

We will be able to leverage most of what you finer lithium ion factory.

Get commensurate cost savings if we were to go that route.

Okay. It makes sense, what gives you confidence you'll be able to manufacture at scale, what processes are unproven or required changes versus today's lithium ion facilities.

It's a fundamentally the made different.

We will approach and conventional lithium ion manufacturing is that we have this unique ceramic separate her but enables us to use the pure mechanics lithium anodes.

So it gives us confidence that we can manufacture at scale 2 things first the fact that this survey was based on pre person materials that are bundled with multiple suppliers of multiple continents and.

Our.

Tools, we use to make the stuff are already used at scale in either of the battery or ceramics industries. Today. So we can leverage the scale of both industries without required.

Mm tool development.

The remainder of these questions are from the <unk>.

Sales of stock by key team members are being perceived by some as extreme with 1 shareholder.

Second we are claiming that our CTO, Tim home sold 50% of his holdings, noting that our chief legal officer sold shares.

And our Chief Development Officer sold 2 thirds of its shares. So the question becomes is there anything to read into those share sales and can you comment on the size of the share so.

John first.

Shareholders references in question are not accurate to correct the record here.

As of the end of the quarter, Tim Our co founder and Chief Technology Officer holds 96% of its prior holdings as of June 32021.

Mohit <unk>, our Chief Development Officer.

Percent, 86%.

And Mike Mccarthy, our Chief legal officer holds 83%.

Yes, if I can just add as I mentioned on our last call outside of satisfying tax obligations I remain committed to not selling any shares until we've delivered a prototype and are commercially relevant form factor at the pulse fiber.

Yes.

Okay. Our next question how soon will you be going into production and can you comment on the ongoing discussions youre, having with automakers.

So on the production side, our plans are to grow into pre pilot production with our <unk> zero line in 2023, followed by commercial production in the 2024.25 timeframe.

On the customer.

I'll say a couple of things 1 is inbound interest remains strong.

And second.

In fact, because demand appears to be higher than our near term planned capacity, we actually won't be able to work with every prospective customer thats expressed interest.

This allows us to be a little more strategic about which customers who choose to work with.

And finally I'll add that our policy is not to discuss customer deals until they're final.

Many Oems consider battery supplier decisions would be provisory.

So out of respect for them, we usually let them be the ones.

That announced their partnership.

Since Tesla 46, 80, lithium ion battery cells advertised as having.

Front similar performance of your battery is less likely to cause a fire versus an internal combustion engine.

What's the real advantage of the south itself.

Yes, so the central 42 community incorporates a number of incremental examples including things like higher nickel content cathode side South of pack design drive actual processing for catheter manufacturing.

Having and so on.

But I will note that in all of these cathode side improvements are available to us as well since we're cathode agnostic.

Couple these improvements with our lithium metal Anna you still end up getting better entity <unk> because of the elimination of the carbon or silicones <unk> and.

And we don't believe you can do better.

But on an ad or less lithium metal cell on metrics like energy density and fast charging cost.

Because we believe that conventional carbon are cognizance of analyst is in fact, the key limiting factor for all of those parameters.

What do you see as the most significant technical challenges to market acceptance and to full scale production.

So the main challenge is scaling up our separately their production, which as I mentioned earlier.

Believe is achievable since the precursor materials, our ortho abundant commodity.

And the production processes and tools already used at scale today.

The second challenge was to increase our layer count, but our announcement today.

Clear.

<unk> already made strong progress on that front. So we feel good about our ability to increase their accounts.

Okay. Our last question from a SaaS deal.

You plan to test your battery from a third party to prove all the claims in your reports are true.

So as we've said before we believe the best independent testing testing conducted by.

We as a group of customers and of course, we've had multiple customers test ourselves in their labs.

Some investors have still asked that we use a third party labs to validate our results.

To be responsive to those investors.

I will say that we have committed ourselves lenses on testing and we will share results when we have them.

I wanted.

I'd point out, though that we're we don't intend to do this for every generation of ourselves.

Our focus remains on providing sell to our customers.

Okay. Thanks, so much guys. We're now ready to begin the Q&A portion of today's call. Operator, Please open the lines for questions.

And that same language asked a question.

You will need to press star 1 on your Touchtone telephone.

Yes first question is from Rod Lache.

Your line is open.

Hi, everybody.

I wanted to ask you.

2 different questions..1 is just you characterize.

The 10.10 layer cell as evidence of improvement in manufacturing can you maybe explain that a little bit for us and in the lab can you maybe characterize.

What you are learning on manufacture ability and specifically any any kind of specific data points on the progress youre, making.

On the speed of production and yield just given that you just said that the.

The second challenge.

Scaling up manufacturing.

Sure Hey, Rod.

On the question, but let me answer the question about.

The manufacturing recruitment first so.

<unk>.

At.

The core of the improvement is as we mentioned was better uniformity better quality better consistency of the films.

It turns out is 1 of the critical path.

<unk> 4.

Their performance on essentially all of the metrics that we care about from.

For.

The cycle will behave.

Behavior too.

Our low temperature all those things are improved do you have.

Better quality and better consistency in your films. So this new process, which represents as I mentioned.

A combination of a number of improvements on the manufacturing side.

Wowed us to make better films better films give us.

A better yield which means some more.

The films that we started a usable so that helps us deal with the fact that attend their salary wise 10 times as many films. So having more films that are that are good it helps there.

Secondly, as you stack up multiple films if.

If you have not new quantities.

And you can.

Compound.

The effect of it was not in the form 8 so a better quality.

Helps you.

Better achieve 10 Theirselves.

So that was the.

I think you also asked about Scaleup plans is that right.

<unk> production in.

Neil just any any.

Any metrics that you could share with us on the progress Youre, making there.

Yeah. So 1 thing we did say in the letter.

The remainder of it was that the new tools that we're installing for example, this new heat treatment toward what we referred to as the there was a photo impacting the letter of the tool you can see just the physical side.

The scale of it it can be.

Fake industrial kind of tools.

That's literally an order of magnitude more throughput.

Throughput and the tools that we're currently using in our baseline process. So.

Those are the kinds of.

A step function improvements in throughput that that are needed to be able to both deal up providing.

Providing ourselves promoting their development.

As well as well.

Provide higher volumes of compete it's Alastair.

To both test internally and provide to our customers. So that's the reason why you feel like the Scaleup.

Yes.

<unk> been strong over the last quarter.

Thanks, and just secondly, if I if I can the comments you made on this.

Our in phosphate.

But to your technology were pretty interesting so in the market today.

I think that L T cells or like 20% less expensive like 80 Bucks a kilowatt hour versus 100 would it be the same for yourselves. So if you were targeting 70.

For kilowatt hour sales in 2027 with nickel would it could it be in the fifties for R&D it and.

Is that something that you're you're sensing from your customers.

Pressing interest.

Yes.

No.

We have given.

Dollar guidance on our cost structure, but he didn't.

Here's what I can provide 2 different.

I think parts of the cost that could be helpful for your models.

First of all of course as you already know rod on the anode side. We believe there is no lower cost <unk> and Nols lithium metal design, because it doesn't handle it all and you can't get lower than that.

Precycle cost there when you couple that with an MSP.

The catheter excuse me.

You then get additional benefits because now the cathode active material is also relatively low cost.

Rice's as you know of the actual battery materials the spot prices fluctuate over time.

Recent prices for normal NMC.

NMC cathode material may have been idled in the low $20 or low <unk> in terms of dollars per kilogram.

The price the comparable price for LSP cathodes.

If I recall correctly.

Recently has been hovering in the mid single digits dollars per kilogram so thats.

Or.

The difference in cost and then given that you've already eliminated the cost of the anode with an analyst design the catheter ends up being.

Larger fashion on the overall cost so having a lower cost Kathy would actually really helps you there so to net it out.

I think what we believe is at the.

Pretty cost advantage, we laid out in our original model of 50% to 20%.

Lower cost than conventional demand itself because of the channels.

We think that roughly holds even for the T cells.

So the beauty of.

Coupling on lithium metal anode lift designed with LSP.

Sure.

Is it a couple of things 1 is you end up with literally the lowest cost possible design that we know of and take.

Zero cost annually and couple that with a very low cost capital. So you've got a very cost advantaged.

So.

But secondly, you take the fundamental disadvantage of LNP.

Or is it it doesn't have a lot of entities entity.

Can you address that directly by coupling it with lithium metal and taking it up to a range where now it's approaching that of today's conventional NMC based batteries. So it's a really beautiful combination right.

In 1 fell swoop end up with a lower.

Which is.

We believe the lowest cost solution, we could have or these kinds of systems.

And B do something to address the biggest weakness in MLP.

So we reported this demonstration.

Really to help the market understand that.

We are Kathryn agnostic, we have the ability.

Sure wherever catheter Oems want and this is not.

Some kind of <unk>.

That'll have raised between LSP in lithium and those are completely different.

<unk> of the <unk>.

Phil.

Multi dimensional space and we can we can.

On both of those axes.

<unk> worked simultaneously so to the extent that RFP becomes important for certain.

Sub sector of the automotive market.

No.

We believe that our lithium metal analyst design Pan with LP.

Becomes the best possible healthy that's what's exciting about that result.

Great. Thank.

Absolutely.

Our next question is from Jose asking Lindsay I'm thinking why can't you. Please ask your question.

Essentially amongst horses.

And they didn't get it.

Couple of questions. The first 1 with regards to <unk>.

Can you give us some rough timing of vessels by when do you expect to have installed most of the machinery for Qs hero.

<unk> has spent spend most of the capex.

It's a syndicated facility.

And can you give us.

So how many people were trying to bring on board by.

Of the year I mean head.

Headcount is.

Is rising rapidly.

End of the year what are the plans.

2 the standard 3 for that.

Having some interesting hires can you talk a little bit about the background.

Coming from Panasonic flatten out.

By the end of help you industrialize.

The production and accelerate that transition into Q2 and Q1.

Yes, thanks for the questions Linda just a JV. Let me go ahead and take the last 1 first because it's relatively straightforward and then I'll hand, it over to Kevin to take the first 2.

No.

We're delighted to have Celine onboard.

I mean she is.

As you know from a background. She ran manufacturing engineering group that Panasonic Giga factories, and retail, which we believe is 1 of the largest if not the largest operating battery facility in the world.

But she is not just a manufacturing expert who has worked with super high volume production.

She came to pass.

She happens to be in manufacturing.

Battery expert because our previous career before this was very deeper the batteries she started out looking at them.

And what's now called excellent what used to be called a failure analysis associates, which was.

1 of the pioneers in battery safety analysis.

Obviously, you went over to Tesla.

<unk>.

During her tenure there they introduced many of the key models that we associated with Tesla now.

And then she went over to Uber. So she's got just an amazing combination of really deep understanding of battery. She can engage with our engineers at the engineering level, but she also understands all of the.

The complexity and sophistication that you need to run a super high volume battery line, where youre, making millions of cells.

On the line.

At that scale.

Little things that you'd never think about has to be addressed exquisitely things like.

Are the blades that youre using the cut your films.

On the right sharpening scheduled.

<unk> do you have.

<unk> order, there's just a lot of things that you don't have to worry about when you're doing small scale manufacturing that become real issues that can hold up the line having somebody on board who has dealt with all of those things firsthand and 1 of the worlds highest volume battery production.

It's.

Thats fantastic and when you couple that the Clayton patch Clayton.

The thing that run well known manufacturing engineering, which is the group that does all of the engineering for the tools and processes that we use and then Clayton patch will run the actual production line.

<unk> background comes from semiconductors reason why that's relevant is semiconductors.

<unk> a very.

Aggressive at using things like metrology.

Getting data on the processing of the materials to be able to keep the process.

Within our control limits and.

A lot of that expertise is going to be very relevant as we scale up the separate airline.

Even the ceramic.

Line a lot of the.

A lot of the metrology techniques, we're using are really.

We can leverage some of the techniques used in semiconductors.

To get tight controls over operating constraints and parameters. So those those 2.

Because of course those are the types of hires that we're making.

That we think are really going to enhance our ability to execute successfully on this next phase of our journey now let me turn over to Kevin to risk the first 2 questions.

Thank you for the questions first question was around some of the timeline for <unk> zero, but to answer your question on timeline and operation we've.

Our guidance.

Yes, Sir we'll produce battery cells for prospective customers to be put into R&D cars in 'twenty 3 working backwards when you've done most of the machines installed in the Capex spend in 2022.

As for the second question around head count.

We mentioned in today's letter with head count.

Just over 400.

We haven't given guidance as to head count we ended the year, but if you could.

Should get in the right ZIP code by looking at our our cash Opex.

And to extrapolate with that growth.

In the quarter, we spent $34 million on the Opex excluding depreciation.

Asian stock based comp and we stick to our guidance of 130 to 160 by year end, which implies that that number will be increasing thank you.

Those 2 together you'll get the curve.

So head count.

That's very clear. Thank you must know color. Thank you.

Thank you.

Our next question is from Adam Jonas of Morgan Stanley. Please ask your question.

Alright, thanks, very much I really interesting call I think that the.

LSP testing.

Touching again also potentially really really significant clients for clarification, you said you believe.

That using your form factor analysis P battery could achieve.

The 600 to 700 watt hours per leader curious if you could give us a range of gravimetric density on that as well per kg.

Yes, I'm pretty sure.

We have those numbers, obviously, because we did the modeling I don't have them and yet Adam but we're happy to.

Domingos available as well, it's a great question I would expect us to be roughly.

Comparable.

Because you are.

Eliminating the.

The annual.

They're all the traditional ASD show, but we can certainly get back to you on the precise metrics there.

Okay could.

Could you also.

<unk>.

The cobalt content of yourselves versus conventional I understand thats going to be.

Cathode chemistry.

Dependent.

But could you give us just some of them absolutely because there's so much focus around cobalt helps out again.

Mhm.

Yes, so the current the current chemistry.

We've been using is 811 chemistry.

So that would be 10% cobalt.

They are a new chemistries.

Our.

Being offered by the capital providers that are even lower cobalt content and that there are some for example that are 7%, 8% cobalt. So that number continues to decline for 2 reasons is obviously you know 1 is.

It improved the cost profile that you have.

Let's call Bolton and 2 it also improves the.

I guess the easy profile, if you don't have.

Cobalt that's mined in them.

<unk>.

Certain places that are on divest working conditions.

<unk>.

That's an independent trend that's going on there.

<unk> is obviously you pointed out it's a very significant investment.

Is that you also want to make a nickel.

I think in IMD selling items.

Obviously superabundant material Super low cost and Thats, what allows them to be.

The mid single digit dollars per per kilogram, but the most important takeaway Adam really is it is.

Is it it's a.

Catherine agnostic design the fundamental breakthrough we have consolidated.

And then enables and Nols lithium anodes and you couple that with.

<unk>.

Whatever capital happens to meet the needs of the application and given the automotive spectrum is so broad from.

Super High end premium vehicles that have.

Our requirements in terms of range at best charge as well as.

No.

Vehicles, where prices the number 1.

Criteria.

<unk>.

Yes.

That level of breath can be fully addressed.

In.

In a catheter agnostic architecture.

Like ours.

Okay and just 1 final 1 from me Jack you had mentioned.

Separately.

I think in 1 of the prepared questions that youre going to submit yourself for independent testing and youre going to provide the results.

At some time in the future can you tell us what testing body and when we might be able to.

Cds those results and again I don't understand.

At the end of this isn't going to be for every iteration, but.

It does seem I think it would be it would carry a lot of weight and the fact that you would even consider to do this suggests that you believe it carries some weight as well.

Yes. So this is.

A.

Certify regretted it kind of a battery test lab and.

I see.

If you have already submitted those cells per test.

But testing does take time, even at once you <unk> it takes some.

Several months to get up to a few hundred cycles. So.

When we have those results would definitely publish them, but you are right.

It is.

It's up.

Even.

Understanding belief as I said on the call is that.

What matters. The most is the testing that customers do in their labs I think some investors do.

Do feel more comfortable if there's a third party lab to test it.

And that's why we're doing this so we will definitely publish those results and thank you for.

Though our points.

We don't have to do this for every generation itself, but I think having.

Having the basic validation that could be a value and these were for lay yourselves or 1 layer.

So this is really just.

These are going to be singled ourselves to validate the.

We shared in the core capabilities of.

What we call the Uncompromised test conditions right. So can you cycle okay.

On the elevated temperatures.

Elevated.

Not super high temperature, not Super high pressure high rates of charge and discharge on the cycling once you once he and so on but we will publish all of that.

Along with the data.

Going forward, we didn't want to get ahead of ourselves and start talking about that too much given that we don't have resulted in yet so.

Thanks Jackie.

Absolutely thanks for the question.

Our next question is from Gabe Daoud of Cowen. Please ask your question.

Afternoon, guys. Thanks for all the prepared remarks, so far.

Maybe just on the lands us.

<unk>.

Maybe Doug if you can answer the last question, but.

Close to 40 cycles are so when should we expect to see that number get closer to I guess before the 500 cycle.

A number and then ultimately get to the 800.

Hundred number that you guys are targeted for.

So automotive applications.

Yes, I mean, I think our target remains the end of the year.

And I think the main point, we I think made on the call.

Having those cells.

Actually be successfully made and go on test and have encouraging early results.

It gives us some level of.

Encouragement.

We're tracking to be in the vehicle.

George wanted to be done and primarily that work involves making a lot more of these cells. So we can characterize the performance.

And the behavior of the cells. So.

Sure.

The typical process that we use is we made a lot of cells.

Get the data we use that data to 2.

Improve.

The design in.

And the manufacturing ethics in the cell and then and then retest. So all of that those are the kinds of things, we expect to do between now and the year to basically turn.

Turn that <unk>.

Of course send ourselves into what we call baseline itself.

Also in the letter we mentioned this.

Sure.

Learn fast.

Model and that's really what we're referring to their idea is to do statistically valid sample sizes that we test and so we can actually draw conclusions.

<unk> is based on the results of those tests that allow us to modify the design.

It moves us forward on the vector that we are instead of moving on.

Got it got it okay. Thanks, Andy that's helpful. And then just a quick follow up just going back to the LSD cathode obviously.

Number of Oems have highlighted.

The potential to use all of P for lower cost entry models, and so was the decision to test.

You know yourself with Enel S P cathode.

Based on a specific request from a potential partner or was it really just to highlight again.

The catheter agnostic nature of the.

<unk> upgrade I'm, just trying to get a sense is it really more of a more of a pull China.

Kind of on a request by us.

Yes, I understand the question we don't.

You mentioned, we don't talk about customer specifics that arent.

Finalize or announce that you won't be able to answer that particular question.

Think.

Sure.

The general idea that.

But there is a role for a low cost capital in the automotive.

Our market is.

Really what we're responding to here. So we've been focused on NMC 811, primarily because.

That kind of highlights the energy density and faster I'd benefits that we've been talking about.

We didn't want to make sure people werent.

Thinking that this.

Lithium metal panel unless design somehow tied to any particular Kathryn.

And given the.

Sort of the.

Resurgence of interest in that RFP.

<unk>.

We really felt like we had a contribution to make here I cant remember as I mentioned earlier.

<unk> had a number of advantages over.

The high range of calculus right. It can be it's obviously lower cost.

It can be more thermally stable it can have better cycling performance.

High power identity, depending on how you design itself, but it has 1 big advantage, which is that it's basically low energy density and that.

Both its applicability to many.

Applications. So the reason why we wanted to use venmo has made clear that you could take that low cost can be to derive the benefits of the low cost and the stability in the thermal.

$50, 1 and just a couple of that with with this.

Henry III design.

That directly addresses the biggest limitation that the energy density so the idea of.

A really low cost design that happens to be.

Roughly in the same ballpark as today's.

NMC type chemistries.

Many Oems I think we consider that could be a pretty a pretty exciting product offerings. So that's the reason why.

How about why we did.

We did the demonstration.

Got it thanks guys.

Absolutely thanks for the question.

And our next question is from Ben Kols.

Your line is open.

Hey, guys. Thanks for taking my questions, maybe just jumping on the LP, but just 1 follow.

What.

It's always been a cathodic agnostic device. So you guys need to tell us that it works.

Pete.

Peak capital.

Change or anything like that.

Is that correct.

I missed the last part of your question Ben It Hasnt been.

Got it.

Emphasize because of the resurgence or if there was some kind of change and kept in good light.

I thought there was always a cathode exhausted regard yeah, yeah, yeah, no yesterday, it always worth a catheter design is it.

Didn't want.

People to think that somehow.

Bottoms gateways, not almost with NMC because.

Okay.

Sure.

Our unique contribution as this lithium metal anode less design, which is enabled by of course, the solstice operator.

We've said before as you pointed out correctly that catheter agnostic, but having actual data what we show.

Actual results constructed with LSP cathodes and our lithium anodes.

Sorry, if it's out there.

We think just hammer that point home.

Because because those are both interesting cathode materials.

And we both have a role to play.

Next many years going forward.

Okay.

On the head count increase and congratulations could you just talk about recruiting in this type of environment.

Battery capacity across the board being explored experience.

Yeah. So we've actually had really good luck with recruiting I mean, we said we.

We grew 20% in the quarter alone that we analyzed that rate.

Pretty rapid rate of growth.

And we hired a lot of people during the.

The pandemic era.

For the year last year.

And we've been fortunate to see a lot of great candidates come through so we were able to.

We keep the level of quality.

Employees that we hired really high.

I think that if you are an engineer.

Scientists working.

On next generation batteries.

My personal opinion is.

There's really no better place to be than quantum escape because.

This is not incremental stuff this is disruptive stuff.

We've shown that the core capability.

Is there based on the data we've already published.

<unk>.

<unk>.

We have.

Because we are still a resource we havent really extensive lab in terms of not only.

No.

Battery manufacturing capabilities.

But that is test and characterization.

Metrology capabilities with a lot of tools that.

Scientists engineers wouldnt.

You have access to many.

Many other.

Organizations, whether they're companies or even universities. So we feel like having the opportunity to work in such a fully equipped lap between cutting edge work.

It really helps us attract great candidates.

The 2 that we spoke about at the senior level obviously.

And tightened on the manufacturing side, just examples, but but theyre just really the tip of the spear there as well.

Many many people.

We've hired over that last year.

And they've allowed us to maintain momentum going forward here.

And then lastly, just flipped.

New entrants to the public markets.

Private companies.

From April 2.

Does that change behavior from your customers or is it.

Kind of like a pilot.

Across all different products right now is that the stage we're in.

For people to pick.

Victor.

Horses I guess.

Better words to go with other technology products.

Yes.

The way, we see it right.

Obviously our opinion.

There's a few.

Alternative if youre an OEM.

Looking for a next generation type of.

Basic chemistry right. There is this other.

Solid state based approaches other than what quantity is doing for.

For example, Theres a sulfides through the polymers the problem with those approaches is that none of them has really shown that they can prevent.

When rates under the types of Uncompromised commissions.

We keep talking about like 1.1 hour charge and discharge at 25% to 30 degrees Celsius temperatures.

3 to 4 atmospheric pressure as opposed to overly elevated temperatures and pressures are 100% definition.

Every previous every an attempt that we've seen for solid state using other materials.

Has.

We're able to cycle on those conditions, so if someone's got that.

That would be exciting news, but we haven't seen that the second category is people that are just using liquids with lithium metal to try to make that work.

And you can get.

It's easy to get results with liquid at low rates of power.

<unk>.

Dendrites or an exponential function.

Power. So at no tower, you can produce exponentially, but conversely, higher powers that propensity grows exponentially so.

And then that's not even taking into account the impedance or resistance growth that happened from the chemical side reaction between the liquid and.

Lithium metal so we think those approaches.

Not going to be viable for applications like automotive where high power is required and there may be an application for those and low power type scenarios that that will be the best case outcome for a liquid based lithium metal approach and then the final I think category is nothing more than silicon and silicon into fine approach to incrementally improve.

Improve the energy density of.

Lithium metal.

Ion cells.

But in the day, even if you had 100% silicon anode with no carbon no binder not driving it.

Just the math of that Silicon alone would double mass of the anodes because silicon has atomic number 28.

Lithium anatomic number 7 so even if you held for lithium Adams for every 1 silicon Adam Youre still doubling the mass of the weight of that I'll, let Anna So really again the day, if you have a working lithium metal anode less design.

We honestly just don't see.

<unk> or.

Or any other approach so our real challenges is not whether there is a better approach out there, but simply whether we can execute on the vision that we've laid out and get into commercial production.

That's really what we're focused on.

And we think that the.

<unk> reported on this call is encouraging sign.

It's obviously not done.

We're not claiming that we are shipping, but we believe that.

It's a signal that.

The team is in fact.

Those out execute it.

Can you keep doing that I think we have an opportunity to really transform the sector.

Thank you very much.

Absolutely.

Your next question is from Mark Delaney of Goldman Sachs. Your line is open.

Hi, Yes, good afternoon, and thanks for taking the questions first just hoping you could discuss more on the manufacturing improvements that you talked about relative to separate or manufacturing and nice to hear about some improvements that you made on.

What's your ability of this operator could you provide more details about how similar the current manufacturing progress and interest that is relative to what you think you may use in volume production for separate or manufacturing.

Yes, So let me address it in 2 parts.

I think obviously, we keep them.

<unk>.

The details.

On the menu for the separated a process fairly close to divest because thats really some of our crown jewels.

As you, obviously know, but I think the net effect of the improvements that were talking about was to get films that are high quality and by quality. We mean uniformity. So there's lots of different non uniformities that will affect the performance of.

The obvious operator, and the industry in the broader industry.

King on these types of materials.

Okay.

It doesn't fully understand the.

The significance of the value for me, but I can tell you. This.

Everything from compositional non uniformities 2 morphology 90 deformities.

<unk>.

Deep activity uninformed. These these are all things that affect the performance of your films.

I mean the separately.

The ceramic.

So the improvement that we're talking about were some concrete changes to our process that led to.

Meaningfully better outcomes in terms of the quality and consistency and that's pretty important.

Well, let me do a high quality films, but you want to be able to get those high quality films.

<unk> repeatedly.

So you get better yield.

Those are really the net effect of the improvements we're talking about and then relative to the tools that we're using.

If you look at the <unk>.

<unk> is in the shareholder letter that.

That is an image of a continuous flow heat treatment tool. So every ceramic has to go through heat treatment step.

But most of that mix today, a lot of services that are done in them.

In batch.

Sure.

Sort of processes for heat treatment.

Those processes, we believe are not very scalable so what we have.

Continuous flow process.

Operators are run through.

On a conveyor belt the seed treatment tool, where you have different.

<unk> zones that can apply a different heat treatment profile as the film's run through.

And that really is what we believe allows us to have a scalable.

Here is that we do.

Don't need.

Patchy treatment. So those are the 2 key points I'd make answer your question. Mike 1 is the net effect of the improvements we're talking about what to make.

We see a better.

Quality films with better consistency and 2 is on the scale of duty side. These continuously treatment tools that we have.

<unk> now.

Deploying we believe.

Really allow us to increase the throughput and also frankly to further increase the quality because we think these continuous 4 tools.

Better precision in terms of.

The heat treatment profile that we can apply.

That's very helpful. Thank.

For my second question I was hoping to talk about the.

Testing the company had talked about last quarter about sells with zero externally applied pressure, which I think could be relevant potentially.

For cells that can be sold into the consumer electronics industry.

If I missed it but I didn't hear an update on.

Sales with zero external pressure applied so is there any progress you can share on that front. Thank you.

With me this is the operator I apologize that there will be.

S E T K.

Line got disconnected, however, shrunk schottky 1 moment.

Your line will be placed on hold until the conference Kevin do you want to handle that.

Operator can you hear me presenters are now back into the main conference room.

Hey, folks I apologize for that it looks like for some reason the line got dropped and everybody.

Are we back on so I think the bigger 1.

We're back on rate.

Yes, we are back in the main conference room presenters you may continue.

Sure Mark.

I don't know if you're a salon, but can you.

Did you hear the answer to your question.

This is mark I'm not sure if you can hear me, but.

I had asked about potentially providing an update about the testing themselves with a euro external pressure.

I don't know if you're if you've got that question.

Yes.

Okay. Thank you.

Yes talking about the drop.

Got.

So things can happen.

On these calls.

Thanks for bearing with us.

So I did ask the question, but it sounds like you've got dropped right at the beginning of my answers are very quickly summarize the answer.

Answer to question is yes.

The reason why you show that you have a bunch of data was exactly to be able to make clear that we.

We can address the consumer application, we're applying pressure is not an option because there's not enough volume in those consumer devices.

But having said that.

We also said that we don't want to get distracted from our primary focus which of course is the automotive sector.

That.

Focus on surface well so far.

And we are.

While we continue to execute on that automotive application.

Before we.

Sure.

Go to find on the path with consumer devices.

But.

The fact is that because we've shown that the system can work on the gyro crusher.

Those applications are within the scope of the ones we could target.

I think you had another question as well Mark Besides that 1.

Second quick question here.

No.

Was it for me.

Okay. Thank you Yeah, My my apologies for the drop it looks like everybody got dropped.

I get it all back on.

He wanted to say that we did a the team did get an answer on the.

LSP Chemistries and Kevin can address that.

Sure Adam you were asking about the gravimetric improvement with the quantum escape approach, we understand conventional lithium ion.

T cells are.

Around 170 gigawatt hours per kilogram, the best cells right now.

For the quantum scape design, combining a solid state separator in lithium metal anode, let's say.

<unk> P category, we believe we would be in the mid 2 hundreds.

Our per kilogram.

Okay.

Okay next question.

And our last question is from the change of the car on Citigroup. Your line is open.

Yes, hi, good afternoon, Jack deep.

You say that you can't put agnostic, whether it's Alex.

LSP or NMC et cetera, each of those scaffolds have different lithium and nickel content does that change the lithium ion flow informing the lithium lithium anode in the battery and if it does how did you overcome that issue.

Yes.

The.

The beauty of the approaches.

Sure.

The lithium that makes up our anode is the exact same lithium that's normally cycling back and forth and a normal lithium ion batteries are the only difference is that instead about lithium.

In total leading into our diffusing into a carbon particle or silicon political as the case may be.

There is.

Popular silicon to integrate into so it's simply a fee.

Forms plate electroplating, a pure metallics lithium.

So.

Relative to whether there's any difference.

For lithium by definition.

The LP chemistry.

As you can issue any lithium ion chemistry is going to be able to have.

Lithium ions come out of the capital flow through retrofit and get to the anode. The only difference here is what happens when that within gets <unk> and in our case.

Lithium to storms when they are appear metallic lithium in the case of lithium ion.

Lithium that goes to the anode.

It is held in place by the scaffolding.

If you will of the of the graphite anode take fixed carbon atoms to hold 1 lithium atom and each of those.

<unk> has had in place, but that's 1 of the reasons why it's called lithium ion because that Amazon has kind of held in place.

And this ionic state.

Okay.

By doing away with the cognizant silicon.

The lithium ion connecting need each other in form of metallic bond and Thats why it becomes lithium metal. So yes. It is catheter agnostic.

No.

It's the same lithium.

B B.

The diffusing into the annual debt balance.

Great.

Sure.

Thank you.

Okay. I guess my question was a little different but maybe I'll come back later.

Now with this LSP count toward a compatibility how does the size of your Tam change in terms of your correlate to the market.

Well I think the way to think about this.

There is a overall market for.

The transportation sector in terms of the number of vehicles sold every year.

And there is a wide range of vehicles that have.

Different requirements.

By enabling LLP as the capital.

We.

We can address.

A broader spectrum of that overall market. So there is there are fewer applications.

Within the vehicle market for which.

This will be an Atlanta based approach would not be a fit.

Argue that debt without LLP.

If there are some low end applications, where cost is the only thing that matters, even if the energy density isn't it isn't.

At World class levels, but with the LNP solution that we have we can deliver.

We can serve those low cost applications, while improving.

The range in the identity.

If they get with the Atwood the LSE battery.

And lastly, you mentioned that you know that MSP, we know that has lower power density, which means range how much can your battery improve that range. Thank you.

Yes, so if you look at the short letter.

<unk>.

Ted.

Currently is on the order of 400 or so what hours per year.

Believe with a quantum scape lithium metal panel design that number gets pushed up to between 6 and 700 watt hours per liter, which is significant not only because it's more than 70 in iron phosphate.

Ricardo.

Carbon.

But because it's actually now approaching the range of conventional NMC batteries.

So it's very exciting.

Combination of low cost.

Without the penalty.

As you can see if you would have because of LTE plus portfolio.

So.

I was 1 of the reasons why we're excited about that.

A demonstration.

Thank you.

Really the 2 demonstrations we made today.

The RFP with lithium metal and independent ourselves together.

I think our adult target in terms of.

Our ability.

For the full market.

Thank you.

Absolutely.

Yeah.

And there are no further questions on queue with Suntrust you may continue.

So I want to thank everybody for taking the time to join our call today again as I just mentioned.

So we're excited about that.

The results that we share today, the <unk> result.

We believe provides strong evidence that.

We are tracking well to the.

Still our plans that we.

We laid out earlier this year.

The LLP result.

Demonstrates that persist.

The system uses by Caf.

Music and we can leverage this low cost capital to carry it into a more useful.

Low cost capital.

We are going to stay focused on the task ahead of what's coming.

Quarters in years and we.

We look forward to reporting further progress on the next earning call.

Thank you all.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

Okay.

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