Q1 2022 Quantumscape Corp Earnings Call
If our goal of commercializing our technology.
This requires a continued focus on improving our production tools and processes as well as incorporating improvements in product design.
We have encountered and expect to continue to encounter and work through a range of technical engineering and production challenges as we execute on our plan.
However, we believe successfully addressing these challenges further strengthen the moat, we have built around our technology with our IP portfolio, which now consists of over 300 patents and patent applications.
In parallel we are building up the layer counts of ourselves. We have also been working to increase the scale of our operations.
One key constraint on this front has been separated production and a key goal for 2022 is to ramp up the production of separate of films with peak weekly starts of over 8000.
We're therefore happy to report that we recorded average weekly starts of over 3700 exiting Q1, 'twenty compared to less than 2000 exiting Q4 2021.
This increase was made possible by new higher throughput continuous flow separated production tooling on our phase one engineering line.
The new tooling has also increased our confidence in a core component of our scale a thesis that larger scale continuous flow equipment can not only improve the throughput of our manufacturing process, but also deliver improvement in quality and consistency due to better process control.
Increased throughput and better quality not only allows us to build more cells. The test, but also allows us to allocate a significant fraction of our separate our films to perform other critical tasks such as testing to automation and iterating on our manufacturing process.
Over the coming quarters, we expect to take delivery and complete the qualification of many more large scale and continuous four tools across our phase one and two engineering lines and are cured zero pre pilot line.
We continue to target delivery of a sample cell to at least one customer in 2022.
For example is planned to have dozens of layers and is intended to demonstrate the core functionality of the battery cells.
Automotive customers today are generally forced to make a choice between cells that offer higher energy, but lower power for higher power with lower energy.
We believe that in order to substantially improve both power and energy simultaneously.
New battery Chemistries are required.
The core value proposition of our solid state lithium metal technology has the potential to shift the performance frontier on both energy and charging speed simultaneously.
In that vein in.
In Q1, we announced new deal with a third top 10 automotive OEM by global revenue.
Upon achieving certain milestones the deal reserves five megawatt hours of capacity for this OEM from <unk> zero hour pre pilot production line.
The agreement also provides a pathway to establishing a U S based joint venture facility with up to 50 gigawatt hours and annual cell production capacity subject to technical milestones in mutual agreement.
This latest announcement is the fifth customer sampling agreement, we've announced at our firms with strong interest leading automotive players have and adopting next generation battery technology.
Lastly, a word on our strategic vision.
Battery development and manufacturing is a complex undertaking that requires grit determination and disciplined execution.
Entering the public markets in 2020, our team has been focused on laying the foundation for what we expect will be substantial growth in our manufacturing and operational capabilities.
122 represents an inflection point in this process and we believe we have shown that our long term execution strategy is beginning to yield results.
While the substantial work remains to accomplish our 2022 goals. We believe this quarter's increases and film starts progress on our proprietary materials and cell format and manufacturing quality improvements represent a strong start towards achieving these milestones.
We look forward to reporting continued advances on these fronts in the coming quarters.
With that I'll turn it over to Kevin.
Thank you Jackie.
In the first quarter, our operating expenses were $91 million, our GAAP net loss for the quarter was $90 million.
This level of spend was in line with our expectations entering the quarter.
Cash operating expenses defined as operating expenses less stock based compensation and depreciation for $57 million for the quarter.
For full year 2022, we continue to expect cash operating expenses to be in the range of 225 million to $275 million as we focus on a sample prototype cell development and scale up of our engineering line.
We're trending towards the higher end of our cash Opex guidance range as we are seeing signs of inflationary pressures, particularly on labor costs.
Capex in the first quarter was approximately 39 million within our guidance range of 30 million to $60 million.
Approximately 60% of our Q1 Capex went towards our phase two engineering line.
The remainder of Q1, Capex was primarily dedicated to progress payments on <unk> zero tools and initial facility spend on our Q S campus Buildout you can read about the details of our spend in the shareholder letter.
We continue to expect total 2022 capex to be in the range of 325 million to $375 million and forecast second quarter capex to be in the range of $35 million to $65 million.
For the remainder of 2022, we expect Q zero equipment and the continued build out of our expanded <unk> zero campus to drive the majority of Capex.
We expect Capex investment during 2022 to be more heavily weighted towards the back half of the year.
We continue to target that by the end of 2022, our engineering line. We will have achieved its goal of producing a sample credit type cells and that we will have received most equipment for <unk> zero towards our 2023 goal of producing candidate <unk> sample cells from that line.
In line with previous guidance, we forecast opex to grow steadily during 2022 and 2023 opex to grow modestly from 2022 levels as we slow our head count growth rate reallocate resources from development to manufacturing and realized gains from investments into automation.
Payments in 2021, and 2022 continuing to represent the substantial majority of investment into our engineering and <unk> lines.
Consequently in 2023, we continue to forecast capital spending related to our engineering and <unk> zero line to decline significantly.
With respect to cash we spent $87 million on operations and Capex in the first quarter.
We continue to expect to enter 2023 with over $800 million in liquidity in line with previous guidance.
We're excited to be underway on our goals for 2022, including the production and delivery of a sample prototype cells and receipt of most <unk> zero equipment towards the production of these sample candidate itself for next year.
With that I pass it over to you John .
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.
Our first question comes from the SaaS side.
I'll state batteries have recently become an auto industry buzzword with nearly every automaker, claiming they will be placing one in a vehicle in the near future.
Can you speak to why quantum scape will come out on top in this crowded house, what solid state producers are the greatest threat to quantum scale.
Sure Jon So first of all we see the level of interest in solid state batteries is evidence of the need for a disruptive new chemistry to improve battery performance on key metrics, such as energy density or range and charging times.
However, solid state by itself doesn't automatically mean better performance.
The key is to show that yourselves can deliver a step change improvement over lithium ion battery on metrics drivers care about such as the ones I just mentioned.
The hard part is meeting all the key requirement simultaneously, what we referred to as the and Carnival and the simple fact of the gains that we have yet to see anyone else liquid or solid of any size.
So data demonstrating cells that are capable of delivering step change improvements to energy and power. While also achieving 800 cycle on what we consider to be gold standard testing conditions, including room temperature or 25 degree Celsius, one hour faster charging times, and especially modest pressure.
So having shown data demonstrating our technology can do this we're now focused on scaling up along two axes greater layer counts and higher scale manufacturing.
We believe that talking about scaling up before showing the basic capability is.
Putting the cart before the horse.
Okay, Great. Our second question is the short lines, whereas the current top priority for quantum scale.
I would say there are three top priorities. So first we need to scale, our multiunit ourselves up to higher layer count.
We need to scale up production capabilities to higher film in cell count.
And finally, we need to incorporate the new capabilities that we've already shown in single yourself, such as repeat at 15 minute charge into multi myself.
Now achieving all of these priorities requires continuing to deploy higher throughput and high quality tools and processes being deeply engaged with our customers and.
And continuing to recruit World class team members in fact, we have one hundreds of positions open.
And we welcome talented applicants who are interested in positively impacting world.
Okay. Our final question from let's say, how do you plan on navigating the fact that lithium batteries are a finite resource and with time will become a more volatile. Good do you hope to create a quote unquote less is more model, where you can get by on less actual lithium mass per battery.
So I think it's important to note that unlike combustion engines, and which gasoline is burned irreversibly and turned into <unk> and <unk> with lithium batteries lithium is not consumed it simply shuttled back and forth between anode and cathode during charge and discharge and.
And when the battery reaches end of life and lithium is still there and can be recycled.
Second point I'd make is that unlike many other lithium metal solutions, which require lithium oils or other forms of excess lithium on D&O, we havent anode free design, which means we use zero excess lithium the only lithium in the anode is the lithium that cycling back and forth between Android and cabin.
In addition, it turns out there's actually a lot of lithium in the Earth's crust.
Our CTO Tim home once estimated there is enough lithium for 100 million cars per year 4 billion years.
And finally, while we're talking about less is more I should point out that our annual free approach also uses zero carbon on the anode. So we.
Nate the need for one of the most polluting steps of the battery supply chain.
So to net it out we believe this is fundamentally different from fossil fuel based solutions.
Of course, we as an industry need to continue to find the more sustainable ways to extract the lithium we do use.
Alright, two more questions we received.
Why the change in film size last quarter from 70 by $85 to $60 75 does farscape need smaller film sizes to accommodate an increasing number of layers or for some other performance requirement.
So in the short run our film size is driven by a balance between a number of key requirements as customer requirements quality throughput production equipment lead times in the long run, but we can adjust our tool sizes, which enabled us to make higher gearing of films, if thats what meets our customer needs.
Okay. Thanks, what remains to be done on our proprietary cell format before that goal for the year is considered accomplished.
So, it's mainly just making enough of them to give us further confidence in the design we'd.
We'd like to see a lot of data gathered a lot of statistics before checking the box on things like this.
This also gives us an opportunity to iterate on the design and of course any new design does require model multiple iterations to work out all the bugs.
Alright, and our final question for Kevin Kevin you've talked about commercialization in the 'twenty four 'twenty five timeline can you better define what you mean by commercialization.
Thank you for the question John commercialization, we define as the production of C sample cells made available for sale to a third party and are currently targeting C sample production on a Q on Q at zero.
Okay. Thanks, so much guys. We're now ready to begin the Q&A portion of today's call. Operator. Please open the line for questions.
Thank you.
To ask a question. Please press star followed by one on your telephone keypad. If for any reason you would like to turn that question. Please press star followed by team again to ask a question Press Star One appears to me in today's call. Please dial and.
Inter stern Glen as a reminder, if you are using a speaker phone. Please remember to pick up your handset before asking your question. We will pause briefly ask questions are registered.
The first question is from the line of Gabe Dodd with Cowen Your line is open.
Hey afternoon, guys. Thanks for all the prepared remarks, and thanks for taking my questions.
Kevin I was hoping maybe because it's actually start with that with that last question from John just on commercialization and how that's defined so C. C samples by 2425 does that.
A little bit of a shift in timing from whom you guys had previously noted or is that consistent with what you had previously messaging.
Well, we think it's pretty consistent with what we've said before.
Gabe This is J D by the way I jumped in here I'll, let Kevin jump in as well.
We've we believe we can.
<unk> zero in.
Should we get.
Not just be samples out of there, but also see samples and see samples of course are defined as <unk>.
<unk> that not only meet.
The commercial requirement, but also are produced on the tooling that will be used for production. So if we can actually.
<unk> zero to be able to produce cells for early commercial deployment that would allow us to do that.
And of course, the other part of <unk> zero.
It's really the.
Testing ground for all of our detailed processes and tooling and really the blueprint for manufacturing. So we really need to get <unk> up and running because that will be the basis for expanding into into higher throughput manufacturing plants by mid decade.
Got it thanks.
So maybe you hit on this a little bit again with one of the questions from from John and also in the prepared remarks, but just this proprietary cell format also understand maybe not quite ready to share a ton of detail around it but just curious if you could talk about how it has been performing relative to expectations and just.
Accommodating volume expansion and then how does this proprietary format change if at all the packaging step of the manufacturing process.
Yes, so the new packaging.
The key part of our overall cell design as you point out.
When you have a lithium metal sound like we have especially on Android free lithium metal cell you have to be able to engineer a packaged deals.
Deals without that actual expansion of the good news is the essential is uni axial which means that only stands in one on one dimension, we can call a to Z dimension.
It's easier to manage that and if it were expanding in three dimensions for example.
If you have things like silicon in the anode that expands in three dimensions that source of lithium and Thats part of it we believe is harder to manage.
But.
So we do have this design that is designed to.
To manage that extension and in fact, as we mentioned in the letter.
The sale that we've reported.
We reported that has achieved over 500 cycles was implemented in that design. So we feel that design has.
As demonstrated that it has a certain level of entitlements so to speak.
But it's not done yet in the sense that we need to do multiple iterations, we need to keep working out.
The.
What what I call buzzing in design as we as we iterate.
And we're not ready to declare that we have to check the box on that its a goal for the year, but we feel encouraged that we've demonstrated that.
There is a basic level of heightened when they are in that package that can get to 100 cycles.
With that with that design.
Okay got it thanks, Rajeev I'll hop back in.
Sure Dave.
Thank you Mr Dillon.
The next question is from the line of screening criteria with SMB CLEC. Your line is open.
Thank you and congrats on the progress guys.
Just going back to the previous question on the 16 layer I think you said it.
Greater than 500 cycles is the performance and if you look at the history <unk> been kind of consistently at 800 cycles at a four layer suntan layer. One layer. So is there more room to improve here on the 16 layer and when should we expect that to hit if it is going to hit 800, when do you when do you see that happening.
Yeah, I think it's a.
Good question, so as you can.
You look back at our history we.
When we make for ourselves we're happy to get any cycles at all we keep improving design. We've got hundreds of cycles and then eventually we get through fully mature designed to deliver on what we call the gold standard.
Testing conditions.
Which includes hitting Adrian cycles at 25 degree Celsius basically at room temperature.
With one hour charge and discharge.
Power levels.
Under modest pressure, so not excessive pressure.
And those conditions have to be met simultaneously so.
What we reported as B cells, it's kind of a snapshot in time.
Five years cycle.
We hope to report additional.
Data over the coming year with these and other cells that can get to our target of beta cycles.
But also importantly, we've said in the past, but on a previous call that our goal for the year actually used to have in a sample of ace Apple is going to be even more than 16 there.
We are currently targeting doesn't.
It doesn't have layers.
That we believe will be capable of achieving our growth and our test conditions. So it's an aggressive goal and thats what we are.
For for this year.
Okay. Thanks for that and then.
One technology question I think one of the benefits of solid state and especially your.
Product that youre targeting as fast charging less than 15 minutes of time.
<unk>, if you kind of look.
At the <unk> some of the recent announcements for example, Kia Hyundai Theyre talking about.
The new EV fix charging in 18 minutes from 20% to 80% I mean, I don't have one haven't tested how alleged those claims sorry, but just trying to understand.
Given that the.
The traditional battery seems to be improving when it comes to fast charging.
When you go into production how much of an advantage do you think youll have and then less than 15 could mean listen it could.
14, or even 10, so where do you see that going longer term in terms of fast charging for Ya.
This is a great question and I'm glad you asked that if you look at our shareholder letter, we actually have a graph that addresses. This exact question, it's called shifting the power energy performance frontier and the key point is you can in fact make a battery today that can charge relatively quickly. The problem is if you do that you have to trade off the energy density of the battery. So you can take a conventional chemist.
And either optimize it for energy, meaning high energy, but lower power optimizer for power meeting firepower, but low energy so in.
In that graph I think it's on page seven of our shareholder letter.
That.
The first curve the lower curve on that graph shows you what we believe todays chemistry that are capable in fact, those two data points on that curve that are from actual vehicles that are on the market today, one of the top selling one <unk> and the other is a leading high performance EDI and you see that they're relatively similar chemistries.
They have different operating point on the power energy trade off so the real question to ask when you hear someone saying 80 million charge is okay 80 million of charge, but with what type of sell as an energy sell repower cell. So in this particular example that we show in our letter.
The high performance has a powerful click and charging on the order of I think 2022 minutes.
But it has only about 600 watt hours per liter at some level.
And Conversely, the top selling long range EV takes longer about 35 minutes to charge to 80%, but has north of 700 watt hours per liter. So the beauty of what we're doing.
It's about changing the chemistry, you can kind of pushed the whole power energy frontier curve out and to the right. So if you look at the curve on the top there you see that you can still have multiple operating points with the quantum scape chemistry, you can make a quantum escape energy cell or quantum escape power cell, but in both cases, you have higher <unk>.
<unk> and higher power and whats available today, and we believe what is.
<unk> with conventional lithium ion chemistry. So that's really the key point is you have to ask.
You have to ask what what the.
The full package looks like what's the energy what's the power, what's the cycle life and look at all the primaries together against goes back to the end problem.
One one minor point to add to that from a vehicle perspective power of course, its charge time and energy is of course range.
Alright got it. Thank you and then one longer term question. This will be this will be my last question I promise you.
You talked about signing or at least an interest from a third top 10 customer and potentially.
Saying that that could lead to a JV down the road and up to 50 Gigawatts of.
Capacity.
I know, it's early days and you have to meet a lot of milestones before we get there but is that should that something we expect in the next five years or has it been.
On the next five year plan. Thank you.
No I mean, it's something that we.
We will work with these guys on and as soon as we can reach agreement and as soon as we can start deploying we will start deploying.
As I said earlier.
The.
The precursor to any larger factories as we have to get <unk> zero done and sort of a defined because thats that will produce the blueprint that were going to use for any factory expansion. The good news is once we get cured zero.
Producing real cells.
Should be able to jump to higher capacity lines and be more efficient about scaleup, but this is this is a.
I'm glad you pointed this particular.
<unk>.
Sure.
JV out because it really is an opportunity here to build it.
A compelling use baseline.
With a really high level of past 50 gigawatt hours is a big number of effects.
<unk>.
I believe it to yours is still larger.
Then the largest currently operating battery factory, so it's a real but the real.
Factory.
Got it thank you.
Absolutely.
Thank you Mr. Terry.
The next question is from the Atlanta, Georgia, TMR <unk> with Baird. Your line is open.
Hey, guys. Good afternoon, and thanks for taking my question.
First maybe you could talk about your long term approach again.
Given that you are getting closer to building things around.
Materials procurement.
And what sort of agreements you have up there.
<unk>.
Yes.
I'll take that this is J D.
The I guess the good news in a way.
We're still not shipping commercially so are the volumes that we are currently consuming of materials is relatively modest.
So we don't have any immediate issues relative to material supply.
That gives us time to work with some of the leading materials providers and our procurement and supply chain teams are working with those suppliers to put in place agreements.
Which we believe.
You can address the needs that we have.
We also have this partnership with Volkswagen as you know it looks like <unk> is obviously one of the.
The largest players in the automotive sector with a lot of.
A lot of sort of cloud and.
And we think that partnership could be helpful relative to getting the attention of the suppliers as well.
Finally, I will tell you that allows the suppliers that we're working with.
Sort of share our sentiment that the future of <unk>.
Batteries in Evs is likely to be solid state.
And if that's the case then they want to be a part of that future and people want to go where the puck is going so to speak and so we've seen a.
Relatively.
A warm reception.
On the part of the suppliers that we work with and obviously we need to.
Get these agreements finalized alternative actual contractual commitments, but so far.
We.
We feel like we're engaged with white players and putting in place the right kind of partnerships.
Yeah.
Thanks, and one more just around <unk>.
Software.
Longer term do you what kind of role do you see software analytics playing in the offering.
Youll give to Oems per ton Im not sure you know that one of your competitors talks about a software package as an adjunct but is that something you would consider as well.
Well it depends on what kind of software Youre talking about I mean, we do a lot of use of software and machine learning models and things like that on the manufacturing side. It can be a very effective tool relative to.
Screening films.
Whether parts of making R. R.
It would be reliable and unreliable and so on so we have some very strong partnerships with some key suppliers there and in fact.
Some meeting.
Deep learning models suppliers that are playing an increasing role in our in our metrology.
It actually.
Processes.
However.
If you're referring to players that are trying to use AI.
Machinery models in in the cell.
In production to try to detect the dendrite, that's being formed information.
To be candid our belief is.
Is that if you.
If your system is already performing dendrites, it's too late.
Just too late you cannot try to identify.
Dendrite formation using software and then try to somehow.
Change your charge protocol or additional protocol to two.
Sort of.
Go down or stop the growth of those turn rates.
We've had a lot of experience with lithium metal over the years and rates.
And we can tell you that if you're a material doesn't fundamentally.
In rates, if there is a defect or a floor of any type.
Lithium metal is going to win right youre going to win so we don't think Thats a viable strategy I don't think any automaker that we know is going to accept the risk of a battery that could then right in the middle of operation and rely on.
The predictive models to prevent it from Brookdale, So again I'm not sure what you're referring to but.
The key point.
Key.
I guess distinction I would draw is theres, a tremendous the high value relative to it.
Deploying software machine learning models.
AI models on the manufacturing.
Action side.
There there.
Isn't really in our view a viable way to use those models.
Randall to try to prevent dendrites.
Well you guys correctly, thanks, guys I'll go back in time.
Thank you.
Thank you Mr <unk>.
The next question is from the line of winding down with Deutsche Bank. Your line is now open.
Hi, Thanks for taking my questions.
I was wondering if you can talk about kind of like the line of visibility you have to take in large scale equipment, you've mentioned in my shareholder letter.
You can just walk us through how that would take 18 8000 were informed plans by the end of it.
Would you say that you're ahead of that <unk> financing plan on our Q1 non generating almost halfway there.
I have a follow up.
Send it for the Phase II Engineering line, that's set to come up this year to produce the sample candidate sells there yes.
Excellent visibility of that tooling is.
Primarily on order at this point.
And then I would say we have good visibility into Q zero, we've provided as a goal to land. The majority of equipment. This year towards startup of that line next year, producing <unk> sample Canada itself.
So that was the visibility part of the question Winnie can you remind me if there was a.
The second part.
Yes.
It has to do with them.
I'll start on the film starts we are.
We're actually pretty pleased with the 3700.
Starts weekly average that reported for the simple reason that.
We've been film constrained for quite some time now we've known for over a year that we need to make more films because.
Everything depends on our film quantities, not only making new cells to <unk>.
Test and deliver to customers, but also things like quantifying new process equipment.
We make a new tool that had high automation, our tool vendor or to partner needs films from us to be able to develop and validate those those tools. So there's insatiable demand for supply of films are separated for all of our different development and manufacturing activities.
And of course, the tough part is it.
To increase capacity or throughput of films, you need new tools and those tools have long lead times, so increasing capacity tends to be relatively nonlinear world.
A step function.
<unk> increased and.
And so the fact that we have.
<unk> gone from.
2000 films in Q4.
Two of about 3700.
This quarter, our Q1 is a great sign that those new tools are not only in but.
But they've been quantified and their operational and in fact, as we pointed out in the shareholder letter one of the key parts of our thesis has been that that when we deploy those.
Bigger continues for <unk>, we not only would get more throughput, but we could get higher quality and that's exactly what's borne out.
There is some graphs in the shareholder letter that might seem technical a little bit.
It's on page four.
Make a really important point, which is that the.
If you look at a few of the key metrics, we use for quality on the films, we're seeing better performance on those key metrics out of these new larger <unk>.
<unk> flow.
Towards that we have with the separator. So it's kind of a double win we're already getting greater throughput, but we're getting better quality films out and of course those two things are really the key to everything we do so yeah, we're pretty pleased by that.
And the goal for the end of the year was 8000 films.
We believe we're tracking to that goal.
If we can get there then that means we.
Yes.
To be in good shape relative to the rest of the goals. We have this year, including the example.
Thanks for that.
And then.
Another one from me.
I guess, what's after 16 layers like okay.
And then more metal ground.
We have to cover this long each antenna.
Okay.
Partnering.
Claims trends.
Thanks for calling Comcast former.
Her background.
I'm just trying to Andrew I mean, obviously you.
Sure.
Alright, yes, yes, I mean, clearly our development teams are going are going to be.
Assembling cells that have higher and higher layer counts I think the dozens of layers.
Just the.
Probably the most meaningful milestone because that.
That's the point at which we believe they will.
Will be.
No.
In some ways.
Any doubts about whether the technology.
Can be scaled up in terms of share count will be put to bed I think what we've shown so far it's super encouraging we went from single Aaron's to four layers to <unk>, but I think probably the most important part of all of that multi dose Gulf. What we've shown so far isn't just that we can scale these up and have the cells work.
But but the.
The cycling performance and capacity retention of those different cells.
Very similar if you look at the curve that we show on I think on page three of the shareholder letter.
It's really hard to even tell which sells at which because the performance is so similar this.
This is important because if you remember.
When we first announced our results back in 2020.
Some of the.
Some of the <unk>.
<unk>, we got were around what happens when you make multi yourself as this capacity as this performance the grade and what we've shown so far is no.
No.
When you build these cells correctly.
You can get very similar performance.
And one for $10 16 ourselves.
<unk>.
We fundamentally believe that as we scale up the dozens of layers, we should be able to retain similar performance.
And up.
Yeah.
At some point.
Having.
More intermediate milestones.
Doesn't really add that much value. It's about do we have any sample that customers are excited about or not and we've committed to.
To try and achieve that this year, so I think.
That will be a fairly.
Gordon milestone for us it.
It won't be easy, but if we can get there I think.
It will be.
Quite transformational.
Okay great.
Alright.
Absolutely. Thank you Ms <unk>.
Sure.
The next question is from Chris Snyder with UBS. Your line is open.
Thank you.
Want to follow up on those comments just made around the scaling up of the multilayer cell design. So.
It seems like the company has been adding about six layers at a time.
At least based on the test results in the shareholder letter is that we've got in.
No.
And how does the company think about the magnitude of these increases.
Assume the absolute level will increase is.
The percentage increase the better way to think about it in that a year ago companies. Those four layers now we're doing 16 layers, which is up forex, even though it's only 12 counts.
So just trying to get some more color around how the company thinks about that ramp I think.
As you work to deliver the <unk> sample with dozens of layers by year end.
Yes, I think the way we think about it is that we make building blocks.
In itself and then we assemble the building blocks into bigger building blocks. So it's not like we add one they are at a time. So there is sort of more of a percentage effect as opposed to sort of a linear kind of if I go back. If you look at the slide on page two it shows you kind of just a graphic.
Time of one axis and number of rather than the other and you can see sort of a almost an exponential looking curve right.
And I don't mean to imply that we can extrapolate that curve.
Yeah.
Because there is no true.
Pretzel curves you can't go to Infinity.
It just gives you a sense that.
If you look at the time it took us to go from.
One layer.
Two two.
Four layers within four to 16.
You are seeing.
Relatively rapid progress.
And again one of the main constraints, we've had is simply getting enough films right.
Fact that we now have the film starts increased to 3700.
This quarter that really was one of the key enablers.
Every time, you make a cell you need 16 films.
16 times, the most capacity as when you're making singular ourselves right. So.
So that's been one of the one of the things we're happy to see progress on.
The other day.
We've said publicly that our goal is to have a few dozen layers. This year again ambitious goal.
We'll see if we can hit it but if we do hit.
It's a pretty.
I think it's a very exciting milestone.
No I appreciate that really helpful. And then for my second question I wanted to talk about or ask about.
The scaling up of the secondary or film put up production and then specifically the charts on page four of the shareholder letter.
So just to make sure I'm understanding correctly so.
The company when the company says, it's averaging 37.
Hundred weekly starts to exit Q1 does that translate to essentially production of a 3700 separators and of that 3700.
Separator production a bit over 1% of the output is meeting the Companys assessment of good quality films, which is up pretty significantly from there.
The old process.
Yes.
So what is the 1% come from us I better answer that 1% number what's the references.
Well, that's just where the blue line seems to be crossing over the Green line.
Yes, 1%, yes, so that line is 100%. So it's one it's 1.0 is a fraction is one zero so that black line and the top of the 100%. So this is what these quality metrics are showing so that's.
Good question. Thank you for asking because it's probably not clear what would be scrapped, but we wanted to share it because they can important points on the X axis.
Is a particular a couple of different proprietary quality metrics, we have that.
Used to determine whether the films are good or bad that vertical green bar.
That shows you the reference level of performance or quality that we were looking for.
If the quality metric is to the left of that line. That's a good film.
And so quite a mix of XI that lines. The platform. So what you see as the Red curve, which is the previous process that we had.
Was producing films that were good.
I don't know.
No.
On the left hand metrics, maybe looks like.
30%, 40% of time and in the <unk>.
Right hand metric, maybe 60% of time with the Blue lines, which is the new processes and the new continuous four tools.
Being that you have.
Much higher fraction of homes, we are well over 90% over 95% effect.
Fact of pushing 100% in the case of the of the right metric.
That in fact mean that performance threshold that we have.
So that's what's exciting is that the number of films that are meeting the threshold is much higher and of course once you have those good films you can use them for all the functions I mentioned earlier, we can use them to build cells to get the customers.
The bill itself the tests.
Levels of different functionality you can use.
You can provide into production for tool and process development.
A lot of uses for films that we have and what this chart is species showing you that.
<unk>.
The number of the general quality of these films is higher than what we saw before I wanted to be careful here. These are not the only quality metrics you use of the films. This is just a kind of a couple of the key ones.
But on these particular metrics performance is very.
It has improved quite meaningfully as you can see.
We still need to work to improve quality.
Quality of the films overall.
To get to our goals.
But.
The main point, we're making here is that the new tools with higher throughput.
Also are producing better quality films, which is which.
Which is a win win.
Thank you for all that color and I appreciate you clarifying.
On the access so thank you for that.
Absolutely.
Thank you Mr Sneider.
The next question is from David <unk> with Wolfe Research Your line is open.
Hey, guys congrats on the quarter. Thanks for taking my question.
I wanted to follow up on the last point, a little bit could you just clarify what has been the assessment from your team as to why these improvements are actually happening when you go to.
Larger scale touring and more continuous throughput.
Yes so.
Basically the short answer is process control.
The bigger tools come with better process control.
And.
To give you a sense just to maybe give more specifics David give you one specific example.
How that works.
Right.
These tools have different zones.
As the film's a process on each zone applies are different.
Profile. So you can have different a different environment different temperature or different time.
As you process the films.
<unk>.
As the tool will get bigger.
<unk> allows you to have better isolation for example between.
Between zones, which means you don't have sort of a spillover of one sort of conditions into the adjacent zone. So thats. One. This one very concrete example, but in general the short answer is yes.
These tools are coming with better process control with led us to more tightly control the films and get better.
Quality coming out of the fields and again. This was this has been a key part of our our scalar pieces at higher throughput.
<unk>.
Likely produce better quality, because you have more automation in less room for human error, but it's still even though that was a piece of it is just really great to see that thesis sort of.
Laying out.
Terms of the actual quality of the films.
Thanks Jack.
Shifting directions really quickly to chemistry can you comment on how your conversations with the auto Oems have evolved over the last quarter has issues with nickel have come up are they looking to change the direction.
I want to go to a library to battery technology.
Okay.
Well.
I'll say a couple of things about that one is.
One is of course as you know our system is Catherine agnostic right, which means that we actually.
Don't tie.
Automaker to nickel if they choose they can use our lithium iron phosphate system and we've shown that our system works with lithium iron phosphate right. The second key point I'll make is it.
In our system, because we don't have an anode, which means no anode materials costs and know anode processing costs.
The the overall system, we believe ends up being more cost effective.
Whatever your baseline right. So if you if you if your overall.
The spot price of nickel goes up and of course, everybody pays more for cathodes, but.
But that same material with an anode less design is going to have lower active materials costs than then one that also requires carbon or silicon or lithium metal or something else on the annual rate.
And then in general.
What I'll say is.
Yes.
The.
Separately as well.
Is it material.
As we mentioned before.
Has established supply chain.
That already exist for all of its key.
The key precursors so to summarize we kind of feel like our our system.
Has some fundamental first principles advantages relative to raw materials requirements right annual it doesn't exist.
Our capital is agnostic to specific materials and our separate or.
Is.
Uses global commodities as precursors. So when you put it all together I feel like it's.
While it's not ideal for the industry to have all these supply constraints to deal with this architecture is probably better suited.
The deal with these constraints then.
Than conventional okay.
Thanks, Jack and just one more quick one for me could you give me a sense of how many pre a sample salads as we deliver to Oems and what size salad Dominion has it been to <unk> ourselves and other Oems largely reporting the same sorts of data that we're seeing here today.
Okay.
So I don't know the actual numbers. So I can't give you any specific numbers there I think the shareholder, whereas he points out if I'm not wrong as quickly.
In real time slow down and I don't want to say anything that isn't publicly disclosed, but I think we actually pointed out that we.
Yes, we have shipped multiple generations of cells.
Multiple customers.
Cross both automotive and other applications and in fact, we also say that in Q1.
Our tender ourselves.
Were successfully tested by one automotive customer and entered the testing phase with another so that's.
That's what we said in the shareholders I'm going to stick with that but.
I think we are.
Certainly.
Our process to develop.
New capability in house.
Then.
Worked through all of the.
Sure.
What I call.
Bugs or iterations as we go through the design and production of it and finally, we get to a level of reliability and confidence based on statistics and data that.
When we provide sales to customers.
One quick thing about your previous question as well I mentioned that we may have some advantages relative to.
Supply chain because of not meeting an anode being cathode ignostic.
And having a separate or that is.
<unk> uses global commodities its precursors.
The one thing of course that we still need as lithium ourselves lithium metal the lithium that goes into the category.
To be there.
On that front, even we also have an advantage which is that our system. If you can call us and anode less design. So we don't need lithium foil for example, there are some lithium metal approaches that lithium foil and.
And so in our case, the only lithium anodes lithium cycling back and forth, which actually you can't have.
Any less lithium and michelle than that so we kind of feel like again.
Not ideal for the industry to be in the supply Crunch mode.
But if youre going to operate in this kind of mode, having a system that's added less of capa agnostic.
That's it.
Some.
No carbon silicon or lithium required on the anode.
<unk> has global commodity precursors for the separate or is probably the most robust system that you can have at this time.
Thanks, Craig and thanks for taking my questions.
Absolutely.
Thank you.
And locals.
I will now turn the call.
Okay.
For any closing remarks.
Yes, so on a personal note I would like to say that with the exception of satisfying tax obligations and covering expenses related to the acquisition of Commscope stock through exercise of options I hold I'm committed not to sell Qantas gave shares until we deliver prototype cell to an automotive customer.
And on that note I'd like to thank everyone for joining and look forward to seeing everyone again next quarter.
That concludes clinically.
Please go ahead.
Carl Thank you for your participation.
You may now disconnect.
Okay.
Okay.
[noise].