Q3 2022 Quantumscape Corp Earnings Call
Paul We've described potential markets for our technology beyond the automotive sector, including consumer electronics.
We believe a key selling point for consumer electronics is the ability of our battery sales to run with zero externally applied pressure since volume constraints within the consumer device made it difficult to apply significant pressure.
We are engaged with some of the leading global consumer electronics companies and I am pleased to report we shipped dozens of euro externally applied pressure singular pouch cells for customer testing within the sector.
Sister tells made with the same design and test it under the same calculations in our own labs showed a leading sales are achieved over 500 cycles.
While we remain focused on the automotive sector to drive our long term growth and demand from this sector remains robust we believe the consumer electronic market represents an interesting opportunity that could potentially provide additional revenue and field validation of our technology.
I'd like to end with look at the Big picture.
While the world is currently facing macroeconomic headwinds and geopolitical disruptions.
We believe the fundamentals driving the demand for energy storage remained unchanged in.
In fact, we believe the need for better batteries has never been more urgent.
We've taken important steps forward over the past quarter.
Our progress is thanks to the incredible work of our team to overcome challenges solve new problems and deliver results as we build momentum towards commercialization.
On that note I'll hand things over to our CFO Kevin Hedrick.
Thank you Jackie.
In the third quarter, our operating expenses were $121 million.
Our GAAP net loss for the quarter was $118 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 were $79 million for the quarter.
For full year 2022, we reiterate our cash opex guidance of $225 million to $275 million.
Capex in the third quarter was approximately $54 million.
The majority of Q3 Capex was directed towards facility investments.
They're large payments went towards our phase II engineering line medium scale continuous kilns cell assembly and testing equipment.
And <unk> zero coding equipment.
In terms of full year 2022, Capex, we expect to be on the lower end of our guidance of $175 million to $225 million.
We continue to try to maximize capital efficiency and our ongoing build out of the queue at zero pre pilot line. For example, a significant number of tools that we will use as part of our phase two engineering line can also be used for initial low volume production as part of our <unk> zero line.
Including these tools, we continue to target year end delivery of the majority of equipment needed for this early production on our <unk> airline.
With respect to cash we spent $110 million on operations and Capex in the third quarter.
And we now expect to enter 2023 with over 1 billion in liquidity above previous guidance of over $950 million.
With that I'll pass it over to you John .
Thanks, Kevin will begin today's Q&A portion with a few questions we've received from investors.
We'll start with you what was the impact of the contaminant discovery to your time line this year.
So that in fact.
Wanted a cross functional team to identify the root cause fix the issue all in a highly compressed schedule.
The team was able to do all this while not giving up on the goal of delivering a 24 day ourselves by year end as we think a testament to the quality and commitment of the team.
Resolving this issue did however require additional work that took time away from our sampling campaign.
Does increase the degree of difficulty of achieving a simple goal on schedule.
Also puts more work ahead of us even though we believe we have resolved the contaminated itself.
Because anytime you make a change like this you have to.
Validate the fixes you implemented that can take time.
I'd like to add that this is the kind of challenged the team has overcome repeatedly over the years, making.
Speaking of lithium metal NFL is not easy if awarded would already be on the market.
So this is not the first time, we face a challenge like this and I'm sure it won't be less.
Okay.
Thank you. Our next question, we have roughly eight weeks remaining in the quarter. How confident are you in your ability to hit the cyclical by year end.
So John as we laid out in the shareholder letter we have a plan that we're executing to under which we believe it remains possible to deliver on a sample by yearend.
However, it's not a slam dunk the timeline is not tight things need to go right and theres not a lot of margin for error.
Mobile issues come up it will present, a challenge relative to the near term timeline.
Having said that when we do deliver 24 it ourselves.
Would be a massive milestone.
Okay, great turning over to you Kevin.
The continued macroeconomic uncertainty and challenging capital markets environment affect quantum escape plans and strategy.
We can't control macroeconomics, and the health of capital markets, which continue to be challenging and uncertain. What we can control is our cash use.
There are two classes of opportunity or just spending near term long term and we're exploring both.
Near term on Opex with things like flattening head count growth relative to plan or interesting services were previously outsourcing given greater internal capabilities.
On Capex.
Looking at ways to be more efficient with our spend and example, we gave in the letter is finding ways to utilize our phase II engineering line equipment for the initial low volume production on our <unk> zero line.
Long term and substantial opportunities.
The evaluation entry into other markets and more capital efficient business models.
We do plan to end the year with over $1 billion in liquidity, we're not taking that for granted and as our letter references we are continuing to look for additional opportunities both near term and long term to reduce these cash with cash expenditures.
Okay. Thanks, Kevin our next series of questions come from Jose <unk> of Jpmorgan.
Alright, when comparing the product development between automotive and consumer electronics and products one of the commonalities in the product development or the synergies and the product learning curves for both products and end markets. One of the largest differences in terms of the end product type of cell charging time charging discharge intensity cycle times et cetera, and then finally.
Do you foresee a larger chance to obtain commercial success earlier in consumer electronics products versus auto or is it more or less the same.
So to summarize it's really asking three questions what are the commonalities what are the differences and then what does the timing look like.
Yes. This is.
These are great questions about the consumer market. So in most ways with the consumer electronics market has easier specs and automotive.
For example, the charter rates are lower.
Operating temperature requirements are not as stringent the layer counts are lower.
So although there are good things.
Offsetting these benefits is I believe this application requires zero extraordinary pressure because physical space is limited in most consumer devices and we believe this feature is hard to implement with lithium metal items, which in the past have generally applied pressure to operate in fact, many groups over the decades have published papers, suggesting that lithium metal.
Intrinsically requires pressure.
To work and so we see this as a scientific breakthrough.
The fact that we've shown zero applied pressure.
In customer labs is what gives us confidence that we can in fact add value in consumer electronics.
This is also why we believe we are seeing strong demand pull from the consumer electronics companies.
The market size for consumer devices, while it's over $10 billion in size is.
Somewhat smaller and the potential market for automotive batteries.
But this is also offset by the fact that.
It may provide a more direct and as you point out Jose potentially earlier path to market.
Relative to common equity what I'd say is that a lot of the things that we need to do such as a more efficient packaging.
Capital and so on applied to both markets. So we don't actually believe that.
Serving this segment will take us too far off of long term metrics.
Okay. Thanks, so much guys. We're now ready to begin the Q&A towards the live Q&A portion of today's call operator open the line for questions.
Thank you Sir.
If you would like to ask a question. Please press star followed by one on your telephone keypad and if for any reason you would like to remove that question. Please press star followed by two and as a reminder, if you are using a speakerphone. Please pick up your handset before asking your question.
Our first question comes from the line of one Chris Snyder with UBS. Your line is now open.
Thank you and appreciate all the updates today.
So back to July the company provided test results for the 24 layer prototype, which I think back to a bit over 100 cycles can you talk about what needs to be done to go from.
Those results.
The delivery of the <unk> sample.
So the customer is it.
Kind of getting the results up to the gold standard test results, which the company has talked about.
Yes. So first of all every customer has a different set of tests that they plan to run on the pay sample to 'twenty. For example, so there's not a single sort of.
The test that covers all customers.
The sales we reported on in the summer where the very 124 hotels, we have built and we're very pleased that we were able to assemble them and actually get it get cycling results, but before we can deliver tells the customers they need to obviously.
Have a much higher level of confidence in terms of the performance and reliability and so on and we have a process map out for how we get there and that process is as follows.
While we are in the development space, we're doing a lot of.
A lot of design tweaks to try to improve performance and overall behavior.
But at some point when we're ready to start making sales to ship, we do what's called run what's called the sampling campaign and that starts by freezing many of the key parameters of the design itself because once we freeze the parameters, that's where we can start ramping up production volumes internally of our separately to films.
Sales as we make more films. We then build more sales of those films. We then put ourselves on test.
We usually try and test the same under the same protocol that the customer would have to sell based on those test results. We assess whether we are ready to ship or not and once we said we are ready to ship, we build sales for our customers and.
And basically select the ones that we want to ship.
Based on the data that we have.
<unk> generated through the previous testing internally, but thats the process that we have and where we are in the process right now as we as we said in the letter we've we haven't backed frozen the major design parameters.
I want to make sure that there are other parameters that we will continue to be.
Improving based on these test results as we put all of our tests.
Learn things we will in fact incorporate insights so freeze English parameters that would mean that there is there going to be no tweaks at all being made but the major parameters are already.
Selected.
Then we will use those separate or films to make cells <unk> ourselves.
Which we will put our tests and we're in the process right now of ramping up production, we said before our goal for the year as the ramp up to about 8000 films per week for the peak week that still remains our goal and we want to get to that goal because that's what will allow us to make ourselves internally to get the confidence that we need.
Then finally, when we do all of that.
<unk>.
<unk> the way that we believe they need to to give us confidence that's what we ship to customers. So that's kind of the process and where we are right now in the stage will be frozen the major parameters and are ramping our production to start building b cells to test internally.
We really appreciate that color in and around that process.
I guess kind of just following up on potential tweaks to the parameters.
Those come internally from quantum scape you guys are analyzing the types of results and youre, making tweaks or the data.
Or could that also come from.
Feedback from the customer asks there'll be a sample of checks.
Yeah. So initially obviously this will be our own testing that will allow us to.
Determining whether anything needs to be changed or not really ideally no tweaks, along the way, we design and deploy exactly as it's supposed to.
Usually in the real World you discover things as you start to make larger volumes on once we ship sells to customers of course, they will test them in their labs and they will provide additional feedback but the hope is that the sales we delivered to them will work as advertised and the feedback that they have will be largely in terms of.
Longer term majority of the sales things like the <unk> samples and see samples and so on.
Thank you I appreciate all that.
The movie.
Thank you for your question Sir.
Our next question comes from the line of Juan when you Don with Deutsche Bank. Your line is now open.
Yeah.
Hi, Thank you so much.
I wanted to sort of narrow in London contaminant issue could you help us understand why instead of only appears.
Keith in the 'twenty four and later than that.
The information in the talent.
Yes.
Okay great.
Yes.
The.
<unk>.
The.
Contaminant appeared in our.
In a separate refill that are material.
Our our film is based on a number of precursors that we get from suppliers.
When our suppliers change things.
The way they practice their materials.
Sometimes they can is to improve the.
Behavior of the materials, sometimes those changes have side effects and sometimes we don't detect those side effects until we've made films out of them put them into cells by the cells are having issues and then have to because we reverse engineer what changed so in this particular case.
Things that are really.
Amazing job.
Particular competitor and it wasn't.
Easily visible so the team has of course identify these issues were related to this other contaminant in the film that had indentified, what the chemical composition of that was that identify which potential precursor material was the source of that containment they had to work with the supplier to reformulate.
That source the precursor material.
And then have to get the new material, we make films, we make cells tepid confirm that in fact hotels did not have.
<unk>.
Adam left and that reducing that contaminant in fact deliver better performance all of those things have to get done.
And we are done and that's what we're excited about the team did a great job of that now.
Now, obviously that that as I mentioned earlier.
Yes.
Results in <unk> being a little tighter than we would've liked.
But the fact that our.
Goal of shipping 21 of this year remains intact is again, a testament to the work the team did.
Thank you so much I just want to follow up.
With regard to the JV pilot facility the <unk> line.
It was mentioned in the shareholder letter that.
Positioning will be either Germany, or the U S could you.
Considerations and factors.
Sure George I don't mean, either Germany or the U S.
Yeah.
Okay.
A great question I think.
The decisions that would be the ones that you would kind of come up with operationally in terms of the cost and availability.
And also <unk>.
Relevantly.
Perhaps the prevalence and applicability of different incentive packages as you know recently passed was the IRR, which establishes incentives in the U S.
Sure.
Closed loop domestic U S production to support it.
Battery supply chain that's of course, something Thats both teams are.
Evaluating in that site selection decision.
Thank you for taking my question.
Absolutely.
Thank you for your question Ma'am.
Our next line of question comes from the line of Jordan Levy maturing Securities. Your line is now open.
Good afternoon, all and thanks for taking my questions.
Clearly you are taking a strategic approach.
A simple process can you maybe talk to the importance of doing the comprehensive internal clinical campaign that you talked to and what sort of flow through that could have for the rest of the OEM qualification process.
Yes, no. This is.
An important point I mean.
Our company at our stage.
It has to be very cognizant back that any sale of any samples we deliver to customers.
Will be the basis of potentially lasting impressions that they get and so we just need to make sure that the property is very high that themselves we do deliver.
Work as advertised and so.
In order to do that we developed this campaign campaign methodologies that I took you through.
It won't be filed in the past with previous Deleverages. This methodology allows us to.
Really.
Controller.
The relatively high level of product quality. It goes to the customer and generally speaking the product tends to have tended to work as advertised.
That is again the goal here.
The reason why is the reported mix because once this capital is delivered and.
And the product works.
It's expected to work.
It does impact.
The focus to subsequent milestones.
We will now conclude the things that you mentioned at the <unk> samples received samples, but at this point to be honest.
Our immediate focus is delivering as examples we don't want to get distracted.
Things that are beyond that right now.
Essentially.
Yes.
All eyes on trying to deliver.
Helpful.
And once you do that integration you can then work with the Oems on subsequent months.
Sure.
So that will have a quick follow up.
You talked to the hybrid architecture.
Wondering if that beeline introduced.
Additional things that needed to be addressed in your collaborations with the Oems or is that something that you've worked through kind of later stage.
April .
That's a good point the design that we outlined in the shareholder letter is in some ways a template I assure you.
What this architecture.
I can.
Could can do and what the sales might look like.
Every OEM is going to have to some extent a relatively customized.
Battery pack, and therefore customized need relative to sell.
Dimensions.
<unk>.
So we may well take this architecture and implemented in a somewhat different size to accommodate the different pack.
Fuel design that the OEM has.
But those are relatively I would say relatively small changes in attaining the dimensions, but keeping the same overall.
Architecture, if an OEM has.
Brilliant idea or another way to.
Packaged lithium metal cells, while meeting the goals of the layout of the letter like.
<unk> did with lithium metal expansion dissipating heat.
<unk>.
Having an efficient package.
Actual of course, we'd be very open to in fact, we welcome their input.
Based on what we've done.
We see this design is.
An innovative way to two vessels requirements of the customers. We've spoken to have have given us very very encouraging feedback on it.
Recognizing that the specific for Becker.
Very bi specific Oems.
Sure. Thanks, so much for the update.
Sure.
Absolutely.
Thank you for your question Sir.
Our next question comes from the line of <unk> <unk> with Baird. Your line is now open.
Yeah.
Hi, Thanks for taking my question good afternoon.
Thanks.
Just maybe along the same lines on the cell architecture.
You talked about how it applies to just.
The customers that you brought up.
We started working with them.
Auto side.
Joe how you prioritize based on yield on the architecture changes at all and then also on.
The consumer electronics, we will how that architecture.
<unk> consumer electronics would you draw the total addressable market.
Subset of that it can be.
Rights with the.
The architecture needed.
Thank you very much.
Yeah, absolutely so.
Beauty of this architecture from our perspective as it is an architecture as opposed to appoint design and what that means is it.
We believe this architecture actually applies across the full spectrum of applications. So what we're doing.
And so for example.
The ace Apple could be specific.
Set of dimensions with the same design.
The the C sample or some production.
So.
Certain OEM needs could be a different dimensions, but with the same basic design our consumer. So we believe also it will be built in the same basic architecture. It will be a smaller sale wouldn't be as big as one of these automotive sales showing the rendering in the lever, but you could imagine the same basic design remember that the key aspect of the design is.
Is it you take yourself to act, which is the active layers the catheter with the separators and so on and you have this.
Metal frame that goes around.
The stack.
So we need to be better just to frame that Richard frame that goes around the stack and then wrap the whole thing.
Laminate, but sort of pouch cell material.
And with that approach what happens is that the as you can see the laminate.
The.
Offset that we in the frame in the face of the cell itself.
Becomes.
Yes.
Our region that can be filled at SSL expense, so when the sell chartwell.
Charge.
Are the sellers reset to note that from the frame.
On the left shows.
The short of it and when you charge it up.
Lithium comes out of the capital in place.
And on forming the <unk> Institute.
Centrally expands in the face of the cell.
It becomes.
Cost of flush with the frame so that basic design.
Can work independently of how big it is.
What application.
Deployment and Thats the part that we're excited about we think that this is a really innovative way to solve the issue of lithium metal expansion, we talked about this.
This particular package architecture in this letter because we've got a lot of questions from investors.
Over the last couple of years on how we will deal with how do we kind of deal with lithium metal expansion.
That's a unique.
A characteristic of lithium metal and hotels, if you want the energy density that lithium metal can potentially offer you have to address this.
This expansion of the cell.
But because the expansion of unit axial along one dimension.
It can in fact be accommodated through design like the one that we presented here. So we believe this is.
An exciting.
Packaging architecture.
Should.
Provided investors.
With.
Good idea relative to how we deal with lithium expansion.
Okay.
Thank you for your question Sir.
There are no additional questions at this time, so again, if you would like to ask a question in star one on your telephone keypad.
Okay. So I just want to thank you all for joining today's call in closing I'd like to thank our investors for their ongoing support of our mission.
Our forward thinking customers for their commitment to helping us get the technology to market and of course, our amazing team of incredibly talented and dedicated team members.
To overcome the problems associated with bringing.
A new technology like ours to market, we look forward to reporting on further progress in the coming quarters.
And with that we'll conclude today's call Timescape Corp, third quarter 2022 earnings call. Thank you for your participation you may now disconnect your lines.
Okay.