Q3 2023 QuantumScape Corp Earnings Call

Good day and welcome to quantum escapes third quarter 'twenty to 'twenty three earnings conference call, Don Slager quantum escape Vice President of capital markets and F. P. N. A you may now begin your conference.

Thank you operator, good afternoon, and thank you to everyone for joining quantum's third quarter 2023 earnings call to supplement today's discussion. Please go to our IR website at IR Doc quantum state Dot com to view our shareholder letter.

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

Forward looking statements generally relate to future events future technology progress or future financial or operating performance.

Our expectations and beliefs regarding these matters may not materialize.

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

There are 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 shareholder letter Form 10-K, and other SEC filings, including uncertainties caused by the difficulty of predicting future outcomes.

Joining us today will be <unk> co founder CEO and chairman J D.

Our CFO, Kevin Patrik and a new addition to our team our <unk> president.

With that I'd like to turn the call over to Jamie.

Thanks, John.

I'd like to begin today's call by introducing our newly hired president Dr Silver silver them sooner.

<unk> now holds a Phd in material science and brings extensive experience in high volume manufacturing of advanced technology products. Most recently, serving as president of Western digital a global leader in solid state and magnetic data storage.

Before that he held leadership positions at pioneer and technology companies, including Sandisk matrix semiconductor at Intel we're thrilled to have him onboard.

I'll start by covering our customer prototypes testing as.

As we reported last year, we shipped our first eight zero prototypes sells to prospective customers in Q4 2022 with the goal of providing a proof of concept demonstration of a 24 layer anode fleet solid state lithium metal battery cell.

We can now share that have top performing ainsworth prototype cell and our automotive Oems battery testing labs achieved over 1000 per cycle equivalents with over 95% discharge intention using customer specified test conditions of CLS recharge in cielo to discharge with our standard temperature and pressure conditions and one <unk>.

3rd% depths of discharge.

I'd like to point out that this is the best performing cell and we have work to do on aspects such as reliability.

This is an exceptional result.

We're not aware of any automotive format lithium metal battery that has shown such high discharge LNG retention over a comparable cycle count at room temperature and modest pressure regardless of fee rate.

We believe that no competing electrolyte solid or liquid has demonstrated sufficient stability with lithium metal to achieve this and that this result sets a new high watermark for lithium metal battery performance.

Operator: Today and welcome to Quantumscape's third quarter 2023 earnings conference call, John Saager, Quantumscape's President of Capital Markets and FPNA, you may now begin your conference. Thank you operator. Good afternoon and thank you to everyone for joining Quantumscape's third quarter 2023 earnings call. To supplement today's discussion, please go to our IR website and ir.quantumscape.com to view our shareholder letter. Before we begin, I want to call your attention to the state part of our provision for forward-looking statements that is posted on our website as part of our quarterly update.

This result is especially meaningful because the age zero prototypes has the same number of layers as our production intent cell and uses our proprietary cell format.

Together with a higher loading capital results reported in our Q1 2023 shareholder letter.

We have now a separately demonstrated three key aspects of our production intent cell design 24, there's higher capital bloating and our new cell format.

With these aspects of combined along with improvements in packaging efficiency in manufacturing process controls and automation for improved reliability.

Operator: Forward-looking statements generally relate to future events, future technology progress, or future financial or operating performance. Our expectations and beliefs regarding these matters may not materialize. Actual results and financial periods are subject to risks and uncertainties that could cause actual results to differ materially from those projected. There are risk factors that may cause actual results to differ materially from the content of our forward-looking statement for the reasons that we cite in our shareholder letter, Form10K, and other SEC filings, including uncertainties posed by the difficulty in predicting future outcomes.

It forms the core of our first commercial product <unk>.

The cover photo of this quarter showed a letter shows a mockup of our <unk> cell format.

It is important to keep in mind that since <unk> five will have higher loading cathodes and more efficient packaging than our eight zero prototypes. So it will sustain higher current densities and be built with tighter margins, resulting in more stress on the cell.

Must also continue to work on producing these cells in large volumes with high quality and reliability.

John Saager: Joining us today will be Quantumscape's co-founder, CEO, and Chairman, J. B.

These factors present significant challenges.

John Saager: Singh, our CEO, Telen Patrick, and a new addition to our team after CIVA CIVA Ram, president. With that, I'd like to turn the call over to J. B. Thanks, John.

Nevertheless, we believe this remarkable result makes clear that our technology can achieve disruptive performance at commercial intently accounts.

Further increasing our confidence in the transformative potential of our technology and product roadmap.

Jagdeep Singh: I'd like to begin today's call by introducing our newly hired president, Dr. CIVA CIVA Ram. CIVA holds a PhD in material science and brings extensive experience in high-volume manufacturing of advanced technology products, most recently serving as president and western digital, a global leader in solid state and magnetic data storage. Before that, he held leadership positions at pioneer in technology companies, including Sandisk, Matrix, Semiconductor, and Intel, with thrilled to have him on board.

Next a word about our customer engagements.

Right now our primary focus is on <unk> development with the goal of enabling superior performance on a range of potential automotive applications across more risk for passenger and commercial vehicles, including motorcycles cars trucks and Suvs.

As we reported last quarter, we're collaborating closely with the prospective large customer in the automotive sector for <unk> five.

Jagdeep Singh: I'll start by covering our customer prototype testing. As we reported last year, we shipped our first A-Zero prototype cells to prospective customers in Q4 2022, with the goal of providing the proof-of-concept demonstration of a 24-layer, anode-free solid state lithium metal battery cell. We can now share that our top-performing A-Zero prototype cell in our automated Orion's battery testing labs achieved over 1,400 equivalent when there were 95% discharge energy intentions using customers' specified test conditions of CIVA 3 charge and CIVA 2 discharge, with our standard temperature and pressure conditions and 100% depth of discharge.

While the scale of this initial application is by design small.

It represents an important vehicle proof of concept that we believe has high visibility and the potential to lead to other programs in the future.

We're pleased with the progress the joint teams have made so far on module and pack integration and system design.

Significant work remains.

For example, we continue to refine and finalize the design parameters of the <unk>, five which will determine the specific thermal and mechanical behavior of the cell.

Beyond automotive, we remain engaged with prospective customers in the consumer electronics sector and in Q3, we entered into a technology evaluation agreement with a leading global consumer electronics player.

Jagdeep Singh: I'd like to point out that this is the best performing cell and we have work to view on aspects such as reliability. Nonetheless, this is an exceptional result. We're not aware of any automotive format lithium metal battery that has shown such high discharge energy retention over a comparable cycle count as room temperature and modest pressure regardless of C-rate. We believe that no competing electrolyte, solid or liquid, has demonstrated sufficient stability with lithium metal to achieve this and that this result sets a new high-water mark for lithium metal battery performance.

We believe the ability of our solid state platform to maintain good cycling performance with zero externally applied pressure meets a key design requirement for these applications.

The single layer sister cells that we first reported on in our Q3 2022, showing a letter have now achieved between 502000 cycles to approximately 80% discharge energy attention with zero externally applied pressure.

Jagdeep Singh: This result is especially meaningful because the A-Zero prototype has the same number of layers as a production intent cell and uses a proprietary cell format. Together with the higher loading capital results reported in our Q1 2023 shareholder letter, we've now separately demonstrated three key aspects of our production intent cell design, 24 layers, higher capital loading, and our new cell format. When these aspects are combined along with improvements of packaging efficiency and manufacturing process control and automation for improved reliability, it forms the core of our first commercial product, QSE5.

Next an update on our product development.

Our planned first commercial product is <unk> five.

Which uses a proprietary format first demonstrated an ACO prototypes last year.

This innovative format is a hybrid of conventional powergen prismatic slow designs to address the Uni axial extension of lithium metal as it placed in strips during charging and discharging we call. This novel format Flex spring.

A key technical goal for the year is to improve sell packaging efficiency relative to the eight zero prototypes cells, we shipped to prospective customers in 2022.

This involves reducing the space taken up by the inactive material and flex frame package as well as increasing the amount of active material in the cell.

Jagdeep Singh: The cover photo of this quarter share letter shows a mock-up of our QSE5 cell format. It's important to keep in mind that since QSE5 will have higher loading cathodes and more efficient packaging than our A0 prototype cell, it will sustain higher current densities and be built with tighter margins, resulting in more stress on the cell. We must also continue to work on producing these cells in large volumes with high quality and reliability.

Which we expect will enable the final commercial designed to reach our energy density targets.

Jagdeep Singh: These factors present significant challenges.

When comparing to a zero prototypes to our current visa are designed to be zeros are designed to pack. The same number of layers with more energy per layer into a slimmer sell package.

We plan to provide a detailed look at the innovative flex frame architecture and an upcoming webinar.

Now, let me hand, it over to Scilla for an update on our manufacturing scale up.

Jagdeep Singh: Nevertheless, we believe this remarkable result makes clear that our technology can achieve disruptive performance at commercial intent layer counts further increasing our confidence in the transformative potential of our technology and product roadmap.

Thanks, Debbie I'll begin with an update on our adaptive process.

As a reminder.

<unk> is designed to deliver up to three times estimates to input using similar equipment to our last generation process.

Jagdeep Singh: Next, a word about our customer engagement. Right now, our primary focus is on QSE5 development with the goal of enabling superior performance on a range of potential automotive applications across motorsport, passenger and commercial vehicles, including motorcycles, cars, trucks, and SUVs. As we reported last quarter, we're collaborating closely with the prospective large customer in the automotive sector with QSE5. While the scale of this initial application is by design and small, it represents an important vehicle proof of concept that we believe as high visibility and the potential to lead to other programs in the future.

Playing less and AVP seven acre.

In Q3, we began process qualification method athletic movement on schedule.

Fastest qualification involves producing films.

Gathering data to characterize their quality and consistency and using that feedback to refine our process specs.

We're pleased with the early returns from the qualification testing.

And while that is worth remaining to dial in this process. We continue look at targeted deployment of enacted by the end of the year.

We also continue to make progress on our next generation combat process.

<unk> plans to support higher volume of <unk> production from our consolidated <unk> Debottleneck.

Jagdeep Singh: We're pleased with the progress the joint teams have made so far on module and pack integration and system design. The significant work remains. For example, we continue to refine and finalize the design parameters of QSE5, which will determine the specific thermal and mechanical behavior of the cell. Beyond automotive, we remain engaged with prospective customers in the consumer electronic sector.

Along with the heat treatment equipment in Q3, we took delivery installed and commission key pieces of equipment related to process automation. Thank you.

Unique set of SME equipment.

One autonation not only increases our cell production capacity.

But it also reduces manual handling which is a common source of rental and variation and tends to adversely impact the liability.

Jagdeep Singh: And in Q3, we entered into a technology evaluation agreement with the leading global consumer electronics player. We believe the ability of our solid state platform to maintain good cycling performance with zero externally applied pressure needs a key design requirement for these applications. The single layer sister cells that we first reported on in our Q3 2022 shareholder letter have now achieved between 1500 and 2000 cycles to approximately 80% discharge energy retention with zero externally applied pressure.

We plan to continue process development and automation deployment to enabling the highest quality consistency and throughput as we build out our manufacturing capability.

Overall, we are pleased with our manufacturing scale in private but more of it more water Feeney Inc.

Including continuing to dialogue defect reduction and quality improvement initiatives integrating advanced metrology and data collection and developing additional process automation.

Jagdeep Singh: Next, an update on our product development. Our planned first commercial product is QSE5, which uses the proprietary format first demonstrated in a zero prototypes last year. This innovative format is a hybrid of conventional pouch and prismatic cell designs to address the uniaxinal expansion of lithium metal as it plays in strips during charging and discharging. We call this novel format flex spring. A key technical goal for the year is to improve cell packaging efficiency relative to the A-Zero prototype cells we shift to prospective customers in 2022.

With that let me turn things over to Kevin for an.

An update on our financial outlook.

Thanks, Kevin.

Third quarter 2023 capital expenditures were $18 million GAAP operating expenses were $121 million.

Cash operating expenses defined as operating expenses less stock based compensation and depreciation were $64 million.

For the full year 2023, we maintain our guidance on cash operating expenses of $225 million and $275 million and revise our capex guidance to 75 million to $100 million <unk>.

Jagdeep Singh: This involves reducing the space taken up by the inactive material and flex frame package as well as increasing the amount of active material in the cell which we expect will enable the final commercial design to reach our energy density targets. When comparing the A-Zero prototype to our current B-Zero design, the B-Zero's are designed to pack the same number of layers with more energy per layer into a slimmer cell package.

Absolutely one third of the reduction in expected Capex spend is due to realize savings. Examples include successful value engineering negotiated price reductions and completion of certain projects under budget.

The remaining approximate two thirds due to shifts in timing, which can be broken down into three broad categories certain items, we deferred because we had additional scheduled buffer items, where we previously forecasted more front loaded payment timing than what will actually be required and updates to aspects of our equipment strategy.

Jagdeep Singh: We plan to provide a detailed look at the innovative flex frame architecture in an upcoming webinar.

Siva Sivaram: Now, let me hand it over to Siva for an update on our manufacturing scale up. Thanks, David. I will begin with an update on our Raptor process. As a reminder, Raptor is designed to deliver up to three times as much throughput using similar equipment to our last generation process while applying less energy per separator. In Q3, we began process qualification of Raptor equipment on schedule. Process qualification involves producing films, gathering data to characterize their quality and consistency and using that feedback to refine our process specs.

Despite these changes in the timing of Capex, we continue to target low volume samples in 'twenty, four and higher volume Usain bolt in 'twenty five.

During Q3, our Capex, primarily went toward facility and equipment spend for our consolidated <unk> zero pre pilot line, including for our after our process for.

For the remainder of the year, our Capex will continue to be predominantly allocated towards zero.

During the quarter, we raised $300 million in gross proceeds from our public follow on offering we ended Q3 with over $1 1 billion in liquidity and continue to look for opportunities to optimize our spending and be prudent with our strong balance sheet.

Siva Sivaram: We are pleased with the early return from the qualification testing and while there is work remaining to dial in this process, we continue to target deployment of Raptor by the end of the day. We also continue to make progress on our next generation cobra process which is planned to support higher volume B sample production from our consolidated QL-03 pilot line. Along with separator heat treatment equipment, in Q3, we took delivery, install and commission key pieces of equipment related to process automation such as unit cell assembly equipment.

We now forecast that our cash runway will extend into 2026 and the additional funds raised from capital markets activity, including under our ATM prospectus supplement with further extend this cash runway.

Longer term, our capital requirements will be a function of our industrialization business model, which we believe could reflect a mix of wholly owned production joint venture and licensing relationships.

With that I'll hand things over to Jack for a final word on our strategic outlook.

Thanks, Kevin.

Siva Sivaram: More automation not only increases our self-production capacity, but also reduces manual handling which is a common source of run-to-run variation and tends to adversely impact reliability. We plan to continue process development and automation deployment to enable higher quality, consistency and throughput as we build out our manufacturing capability.

Fundamentally our focus for 2023 simple turned the corner from prototype to product.

Our key milestones are all aimed at advancing product development to build a sufficient level of technical and manufacturing maturity to enable initial production of the <unk> itself.

With just a few months remaining in the year, we're maintaining aggressive near term schedules and remain focused on bringing a potentially disruptive first product to market in the near future but.

Siva Sivaram: Overall, we are pleased with our manufacturing scale of progress, but more for more work remains including continuing to drive all our defect production and quality improvement initiatives, integrating advanced metrology and data collection and developing additional process automation.

But strategically our mission is bigger than a series of near term objectives. We've.

<unk> been pursuing a next generation electric vehicle battery for over a decade and with admission is challenging and important as this long term thinking is indispensable. Moreover, the market opportunity for our technology platform is massive potentially in the hundreds of billions of dollars annually for decades to come.

Kevin Hettrich: With that, let me turn things over to Kevin for an update on our financial outlook. Thanks, Kevin. Third quarter, 2023, capital expenditures for 18 million, gap operating expenses were 121 million. Cash operating expenses defined as operating expenses less stock-based compensation and depreciation for 64 million.

With that in mind this year and we've also taken steps to strengthen our long term strategic position. For example, this quarter, we seized the opportunity to fortify our balance sheet, extending our forecasted cash runway into 2026, and securing funding for pivotal development and deployment milestones, including higher volume be samples based on our <unk>.

Kevin Hettrich: For the full year 2023, we maintain our guidance on cash operating expenses of 225 million to 275 million and revise our CAPEX guidance to 75 million to 100 million. Approximately one-third of the reduction in expected cat-back spend is due to realized savings. Examples include successful value engineering, negotiated price reduction and completion of certain projects under budget. The remaining approximate two-thirds is due to shift in timing, which can be broken down into three broad categories.

Separate process, which if achieved would have a transformative effect on our business.

We've also built on our strong customer relationships and deepen our engagement with the perspective large customer for our <unk> product.

And we continue to add manufacturing experience and technical excellence to our team at every level.

At the close of Q3, we feel prepared to face the inevitable and innumerable short term challenges on the way to our goal because we've laid a strong foundation for long term success.

We look forward to reporting our challenges and the successes in the quarters to come.

Kevin Hettrich: Certain items we deferred because we had additional scheduled offer items where we previously forecasted more front-loaded payment timing than what will actually be required. And updates to aspects of our equipment strategy. Despite these changes in timing and cat-backs, we continue to target low volume B samples in 24 and higher volume B samples in 25. During T-3, our cat-backs primarily went towards facility and equipment spend for our consolidated QS-0 pre-pilot line, including for our raptor process. The remainder of the year, our cat-backs will continue to be predominantly allocated toward QS-0.

Thanks, Jackie will begin today's Q&A portion with a few questions. We've received from investors over there I believe investors would be interested in JV will start with you and I wanted to ask about our newly hired president Dr. <unk> <unk>.

Could you tell me a little bit about your expectations prohibited new role and why you felt somebody with his background and experience was good fit for us at this stage of our development.

Sure. So we're thrilled to have joined the team we've set our that are meaningful for the year was to turn the corner from prototype to product in support of that we've been working on the scale up of the manufacturing processes equipment and automation associated with higher volume higher quality production. A key part of this is of course, having the expertise needed to do this.

Kevin Hettrich: During the quarter, we raised $300 million in gross proceeds from our public fall on offering. We ended T-3 with over 1.1 billion in liquidity and continued to look for opportunities to optimize their spending and be prudent with our strong balance sheet. We now forecast that our cash runaway will extend into 2026. Any additional funds raised from capital market activity, including under our ATM respective supplement, would further extend this cash runaway.

We wanted to bolster our senior management team with someone who brought not only super high volume production experience with experienced and sophisticated manufacturing processes such as those found in the semiconductor our magnetic storage industries.

So we don't think we could have found a better fit than with Silva, who is president of western digital when one of the world's largest data storage companies with $18 billion in revenue in 2022, and something like a 40% share of the hard drive market. The company shipped literally millions of units per year and these units involved highly advanced manufacturing plant.

Kevin Hettrich: Longer term, our capital requirements will be a function of our industrialization business model, which we believe could reflect a mix of wholly on production, joint venture, and licensing relationships.

Jagdeep Singh: With that, I'll hand things over to Jackie for a final word on our strategic outlook. Thanks, Kevin. Fundamentally, our focus for 2023 is simple. Turn the call from prototype to product. Our key milestones are all aimed at advancing product development to build a sufficient level of technical and manufacturing maturity to enable initial production of the QSE 5 self. With just a few months remaining in the year, we're maintaining aggressive near-term schedules and remain focused on bringing a potentially disruptive first product to market in the near future.

Jesse and supply chains. For example, as you might know modern disk drives had magnetic heads that float on the order of five nanometers above the surface of a platter of spinning at several thousand RPM and do this repeatedly and with very high reliability.

It is also a pioneer with multilayer semiconductor technology, which now routinely achieved over 200 layers.

All of this experience will be invaluable as we scale up our equipment.

Increase our quality and reliability.

Okay and now question per silver silver now that you've been with funnel escape for a couple of months and wanted to get your initial impressions as well as your assessment.

Jagdeep Singh: But strategically, our mission is bigger than a series of near-term objectives. We've been pursuing a next-generation electric vehicle battery for over a decade, and with the mission as challenging and important as this, long-term thinking is indispensable. Moreover, the market opportunity for our technology platform is massive, potentially in the hundreds of billions of dollars annually would decade to come.

Why do you think <unk> technology is scalable and what needs to be done to make that happen.

Thanks, John.

It's been a very active and involved in that component.

Even before I came to the company explained a lot of time developing an understanding of the electric industry and to obtain the dominant amex of quantum skips technology.

Jagdeep Singh: With that in mind, this year, we've also taken steps to strengthen our long-term strategic position. For example, this quarter receives the opportunity to fortify our balance sheet, extending our forecasted cash runway into 2026, and securing funding for pivotal development and deployment milestones, including higher volume B samples based on our COPA separator process, which if achieved, would have a transformative effect on our business. We've also built on our strong customer relationships and deepen our engagement with a prospective launch customer for a first product. And we continue to add manufacturing experience and technical excellence to our team at every level.

But now that I'm here, what is invested in first and foremost is the quality and commitment of the people.

Jagdeep Singh: At the close of Q3, we feel prepared to face the inevitable and innumerable short-term challenges on the way to our goal, because we've laid a strong foundation for long-term success. We look forward to reporting on challenges and successes in the corners to come. Thanks, Jagdeep.

The depth of expertise and experience at CN within quantum scale.

I see that <unk> that we have.

Have in development in the collection and management of data and gives me confidence in the company's core competencies.

It's very interesting to note that the modalities.

Goodbye prior semiconductor and <unk>.

Ladies and high level Assembly.

Semiconductor backend.

<unk> manufacturing as we attend to highlighting the key to gaining a deeper connection.

<unk> controller and a high level of automation.

I've also seen that the ecosystem of content.

Very well developed.

The incoming material equipment set.

Setting up a very robust supply chain.

John Saager: We'll begin today's Q and I portion with a few questions we've received from investors, or that I believe investors would be interested in.

And the depth of interaction with the top tier customer.

We have studied feedback.

John Saager: Jagdeep, we'll start with you.

Set the tone for continuous improvement as being App overall.

Jagdeep Singh: And I wanted to ask about our newly hired president, Dr. Sivaram. Could you tell me a little bit about your expectations for him in a new role, and why you felt somebody with his background and experience was a good fit for us at this stage of our development? Sure. So we're thrilled to have Siva join the team. We've said that our main role for the year was to turn the corner from prototype to product.

All in on.

The company and the technology and worldwide plus gain.

Great. Thanks, so much setup.

Turning to U a question submitted by one of our investors can you provide some additional context on the $300 million follow on offering closed in August.

Does this fit into your long term approach to capital management.

Jagdeep Singh: In support of that, we've been working on the scale-up of the manufacturing processes, equipment and automation, associated with higher volume, higher quality production. A key part of this is, of course, having the expertise needed to do this. We wanted to bolster our senior management team with someone who brought not only super high volume production experience, but experience in sophisticated manufacturing processes, such as those found in the semiconductor or magnetic storage industries.

Thank you John for the question on behalf of the Investor.

In the first half of this year, we hit several product and manufacturing milestones on the path to commercialization. We believe that the time is right for our follow on equity offering based on the product manufacturing and customer momentum of the company on.

On the product development front recall that in our Q2 shareholder letter, we shared higher cathode performance higher cathode loading performance data and shouldn't unit sales with these cathodes to multiple partners.

Jagdeep Singh: But we don't think we could have found a better fit than with Siva, who was president of Western Digital, ran one of the world's largest data storage companies with $18 billion in revenue in 2022, and something like a 40% share of the hard drive market. The company shipped literally millions of units per year, and these units involved highly advanced manufacturing processes and supply chains. For example, as you might know, modern disk drives have magnetic heads that float on the order of five nanometers above the surface of a platter, that's spinning at several thousand RPM, and do this repeatedly and with very high reliability. We've also pioneered multi-marital semiconductor technology, which now routinely achieves over 200 layers. We think all of this experience will be invaluable as we scale up our equipment and increase our quality of reliability.

On the manufacturing front in Q2, we completed site acceptance for our Raptor equipment tracking to our year end, Google to deploy fast separated process.

And on the customer front, we had announced that we engage with a prospective launch customer in the automotive space to bring <unk> to market.

So we felt like we are on strong footing on a number of fronts and wanted to ensure that our capital the capital runway with extended to 2026.

Funds the build out of our <unk> zero Kumara line in production of our higher volume samples targeted at the end of 2025.

Okay, great. Thanks, Kevin so much for that insight.

With approximately two months left in the year can you summarize for investors, how we're tracking against our 2023 goals that we laid out for investors in February.

Siva Sivaram: Okay, and now a question for Siva.

Specifically what work remains to be done.

Siva Sivaram: Siva, now that you've been with Quantum Skate for a couple of months, I wanted to get your initial impressions as well as your assessment. Why do you think Quantum Skate technology is scalable, and what needs to be done to make that happen? Thanks, John. It's been a very active and even last could limit. Even before I came to the company, I spent a lot of time developing an understanding of the electric industry, the real time, the thermodynamics of Quantum Skate technology.

Sure John So at the beginning of the year, we laid out four key goals for the year that we thought were critical to helping turned the corner from prototype to production.

The first was to increase the loading of the cathode grew approximately $3 million of hours per centimeter squared to approximately $5 million up hours per centimeter squared to store more energy in the cell. We reported on the Q2 call that we achieved this higher loading tablet and in fact shipped units sell prototypes with these new cathode to customers.

Siva Sivaram: But now that I'm here, what has impressed me first and foremost is the quality and commitment of the people. The depth of expertise and experience that's here within Quantum Skate. I see the rigor that we have in development and the collection and management of data, and gives me confidence in the company's core competencies. It's very interesting to note the similarities to my prior semiconductor and magnetic storage experience, whether it is a hardware assembly, semiconductor backend, or battery manufacturing, as we've came to high volume, the key to scale is deeper detection, process control, and a high level of automation.

The second key goal was to improve the efficiency of packaging and on this front, our new flex frame package incorporates a number of improvements from narrower edge margins, the thinner contractors and center a decent layers.

The other two goals, where production related and having to do with our raptor of process and reliability and I'll turn it over to Sid let's talk about those.

Thanks Debbie.

Good luck to install and deploy a new adaptive process.

We have installed and qualified the raptor equipment.

We are talking to produce high quality firms and that optimizing the process to meet the performance targets, we are making good progress towards that after deployment by the end of the year.

Siva Sivaram: I've also seen that the ecosystem at Quantum Skate is very well developed, provides the incoming material, equipment, setting up a very robust application, and the depth of interaction with top tier customers. They have studied feedback to fit the tone for continuous improvement as they adapt, all it on, the company and the technology are well-wise for kidding. Great.

And finally on the liability.

Undertaken and completed over a dozen initiatives to renewal activity.

And are now focused on processing Hamlin enhancements.

That we believe will take a little liability up to a new level.

Of course, the liability is never done.

<unk> is an ongoing effort to readout and eliminate potential failure modes.

Especially as we introduce new England as Canada processes.

Siva Sivaram: Thanks so much, Sivaram.

Kevin Hettrich: Kevin, turning to you, a question submitted by one of our investors. Can you provide some additional context on the $300 million follow-on offering closed in August? How does this fit into your long-term approach to capital management?

Okay. Thanks, so much guys. We're now ready to begin the <unk> portion of today's call.

Operator, please open up the line for questions.

Thank you. Thank you have a question. Please press star one on your telephone keypad. If you wish to withdraw your question simply press Star One again one moment. Please for your first question.

Kevin Hettrich: Thank you, John, for the question on behalf of the investor. In the first half of this year, we hit several product and manufacturer milestones on the path to commercialization. We believe that the time was right for a follow-on offering based on product manufacturing and customer momentum of the company. On the product development front, recall that in our Q2 shareholder letter, we shared the higher capital performance, the higher capital voting performance data, and shook unit cells with the capital's multiple partners.

Your first question comes from the line of Douglas <unk> with Evercore ISI. Your line is open.

Hi, Jack and Kevin Welcome Steve.

I appreciate the nice update here.

Can I just quickly ask for a little more detail on the <unk> sample timeline, specifically if you can confirm when the timeline for production with Raptor looks to be right. Now previously I believe you said about 18 months after the <unk> sample, which would imply to be sample timing around mid 'twenty for this release only closed calendar year 2024. So is there anything else you can tell us on the timing for those.

Kevin Hettrich: On the manufacturing front, in Q2, we completed site acceptance for our Raptor equipment, tracking to our year-end goal to deploy the fast-separator process. On the customer front, we announced that we engaged with a prospective launch customer in the auto-month space to bring QSE5 to market. We felt like we were on strong footing on a number of fronts, and wanted to ensure that our capital runway would extend to 2026, which funds the build-out of our QS0 Cobra line and production of our higher volume B samples started at the end of 2020 thought.

First be zero samples given that it seems the raptor certification and testing process is coming along well.

Yes.

As <unk> mentioned, we're pleased with the way the Raptor qualification buses is growing the equipment has been installed and qualify the process as we speak for deployment later this year.

And we do believe we're still targeting 2024 four.

Kevin Hettrich: Okay, great. Thanks, Kevin. So much for that insight.

The low volume B samples.

Jagdeep Singh: Jamie, with approximately two months left in the year, can you summarize for investors how we're tracking against our 2023 goals that we laid out for investors in February? Specifically, what work remains to be done? Sure, John.

When we used when we provided the 18 month guidance that of course was a general approximate guidance, but I think the.

The targets that we're still tracking toward the 80 24 is when we hope to have when we are targeting to have the first low.

Jagdeep Singh: So the beginning of the year, we laid out four key goals for the year that we thought were critical to helping turn the corner of the prototype to production. The first was to increase the loading of the cathode, with approximately three million amp hours per centimeter squared, the approximately five million amp hours per centimeter squared to store more energy in the cell. We reported it on the Q2 call that we achieved this higher loading cathode and in fact, shift unit cell prototypes with these new cathode to customers.

<unk> zero samples.

Subsequent to that we expect to have higher volume samples using the new Cobra process.

Before we get into 2025. So those are the two key milestones for us coming up next year on year. After using thereafter, a process to introduce global Abb's, Apple's <unk> 44, and the Cobra process, which is even faster as you know to introduce the higher volume samples.

Siva Sivaram: The second key goal was to improve the efficiency of packaging. And on this front, our new flex frame package incorporates a number of improvements, a narrower edge margins, the thinner current collectors, and thinner adhesive layers. The other two goals were production related and having to do with our Raptor process and reliability.

Five.

Okay. Okay. That's helpful. And then just a quick one on Toyota and solid state news over the last couple of days.

The company is claiming a doubling of EV range with their solution.

Quote unquote, new tack here right, there simply adding significantly more kilowatt hours to the smaller space required in a solid state design.

Siva Sivaram: And I'll turn it over to Sybot to talk about those. Thanks, David.

To achieve that stated range is that your understanding thanks team.

Siva Sivaram: The third goal was to install and deploy a new Raptor process. Install and qualify the Raptor equipment. We are starting to produce high quality films and are optimizing the process to meet our performance targets. We are making good progress towards Raptor deployment by the end of the year.

Yeah. So first of all I want to say that we're generally pleased to see a company like Toyota endorsing solid state batteries.

The future of <unk>, we obviously we've.

We have done with Allstate.

For a long time, having said that Toyota has announced that its using a sulfide based approach, which does come with some challenges.

Siva Sivaram: And finally, on reliability, we have only taken and completed over a dozen initiatives to reduce the activity and are now focused on process enhancements that we believe will take over reliability up to a new level. Of course, the reliability is never done. It requires an ongoing effort to read out and eliminate potential failure modes, especially as we introduce new improvements I've carried out.

We've done a lot of work and sulfides ourselves here. If you look at our patent portfolio in India. The patents are in the sulfide space and one of the key challenges with sulfide based approaches us.

Low cycle like that results from.

Poor electrochemical stability and the propensity to form lithium metal dendrites.

As a dead right problem isn't addressed then there are sort of two basic options. One is to revert back to a carbon our silicon based host material as opposed to lithium metal.

Siva Sivaram: Thank you so much, guys.

Operator: We're now ready to begin the live portion of today's call. Operator, please open up the line for questions. Thank you. If you have a question, please press star one on your telephone keypad. If you wish to withdraw your question, simply press star one again. One moment please for your first question.

But then that results in reduced energy density and power density relative to lithium metal anode and.

And the other option is to run under what we consider to be compromised test conditions I E.

Elevated temperatures.

Or a very high pressures or low rates of charge and discharge or a short cycle right. So all of those approaches we think make the approach unsuitable for.

Douglas Justin: Your first question comes from the line of Douglas Justin with Evercore ISI. Your line is open. Hi, Jagdeep and Kevin. Welcome, Siva. Appreciate the nice update here. Can I just quickly ask for a little more detail on the B sample timeline, specifically if you can confirm when the timeline for production with Raptor looks to be right now. Previously, I believe you said about 18 months after the eighth sample, which would imply to be sample timing around mid-24, this release only close calendar year 2024.

For commercial vehicles.

We're not aware of data from anyone that demonstration these fundamental challenges of lithium metal and the inflammation.

Sulfide based systems has been addressed at room temperature and modest pressures.

But the legacy Walter.

And of course, the data we shared today if you look at the.

First.

Sure.

Shareholder letter.

It shows data from our <unk> zero 24 layer prototype cells, which of course, we shipped.

Douglas Justin: So is there anything else you can tell us on the timing for those first B zero samples given that it seems the Raptor certification and testing process is coming along well. Yeah, we're still a mission. We're pleased with the way the Raptor qualification process is going. The equipment's been installed and we're qualifying the process as we speak for deployment data this year. And we do believe we're still targeting at 2024 for the low volume B samples.

In 2022.

<unk> achieved a one <unk>.

Cycles with a remarkable 95% catastrophe retention, which as we mentioned in the call. We believe there is a high watermark.

For <unk> automotive format salted lithium metal batteries so.

We think the data.

It's pretty clear on the capabilities of this approach.

Douglas Justin: When we provided the 18 month guidance, that of course was a general approximate guidance, but I think the the targets that we're still tracking to are in 24 is when we hope to have when we are targeting to have the first low volume B zero samples. Subsequent to that, we expect to have higher volume B samples using a new cold rough process before the end of 2025. So those are the two key milestones for us coming up next year and year after using the Raptor process to introduce low volume B samples in 24 and the cold rough process, which is even faster as you know to introduce the higher volume B samples in 25.

Your next question comes from the line of John with Deutsche Bank. Your line is open.

Hi, Thanks, so much for that.

Thank you for your questions I was wondering if you can elaborate on the challenges being presented by MS shareholder letter.

More specifically on combining the high capital loading with Melissa Fisher packaging and then the new <unk> format.

Essentially what are the hurdles that need.

<unk> overcome for this combination can be.

Awesome.

Yes, it's a good good question so as we pointed out in the letter.

Jagdeep Singh: Okay, okay, that's all full. And then just a quick one on Toyota's solid state news over the last couple of days, you know, the company's claiming a doubling of EV range with their solution. There's no quote unquote new tack here, right? They're simply adding in significantly more kill a lot of hours during the smaller space required in a solid state design to achieve that stated range. Is that your understanding? Thanks Dean.

If you look at the differences between the eight zero, we shipped last year and the <unk> that we intend to ship next year.

There is a few key areas where that account for the biggest differences one is the layer count I'm sorry, the layer count is in fact, the same we're shipping.

<unk> will be at 40 for yourselves and the a zone that we shipped last year were also 24 to <unk>. So we've shown we can do that the second thing that <unk> needs to have is a higher loading cathodes, so specifically, a roughly $5 million power per centimeter squared loading capital.

Jagdeep Singh: Yeah, so first of all, I want to say that we're genuinely pleased to see a company like Toyota endorsing solid state batteries as a future of these we obviously agree we've been on solid state for a long time. Having said that Toyota has announced that it's using a sulfide base approach, which does come with some challenges. We've done a lot of work on sulfides ourselves here to look at our patent portfolio number of the patents are in the sulfide space.

Jagdeep Singh: And one of the key challenges with sulfide based approaches is most likely like that results from poor electrochemical stability and the capacity to form Latino dendrites. That's a dead right problem isn't addressed. Then there are sort of two basic options. One is to work back to a carbon or silicon based host material as opposed to lithium metal. But then that results in reduced energy density and power density relative to the metal anode and the other option is to run under what we consider to be a compromised test conditions, i.e, elevated temperatures or very hot pressures or low rates of charge and discharge or short cycle lights.

<unk>.

The Azores, we shift had a $3 million okay.

We showed earlier this year.

Results from $5 billion, a barrel cathodes I think it was on the Q2.

Call and we've since ship those cells with those high level capital to customers.

The third piece is we need to put all this into our new.

More efficient flex frame package.

We.

I mentioned on the call will be already made progress towards that in the form of <unk>.

Reduced margins.

Thinner.

<unk> layers in Jetro layers all of those we think will play into that so when you take those three things that we have.

<unk> demonstrated separately and combined them together and then add to that the improvements that we're talking about with reliability that come from process control and more automation.

Jagdeep Singh: So all of those approaches, we think, make the approach, I'm suitable for for commercial vehicles. We're not aware of data from anyone that demonstrated these fundamental challenges of lithium metal, the information in sulfide based systems has been addressed and room temperature of large pressures. But it did a good to be welcome seeing it. And of course the data we share today, if you look at the first chart in our show or the letter.

You end up with the core of what is <unk>. So I think the way we think about it is from a risk standpoint, we believe we've demonstrated.

Any of the key aspects of the <unk> sale already separately.

If you use software technology at the unit cell level.

Jagdeep Singh: That shows data from our a zero 24 and air prototype cells, which of course we shipped in 2022 that achieves a thousand cycles with a remarkable 95% capacity retention, which as we mentioned in the call, we believe there's a high watermark for psychological and automotive format. So we think the data is very clear up on the capabilities of this approach.

Intest level and now we just need to bring them together into an integrated cell. So it's more of a integration tasks.

Now when we have <unk>.

Then it is a task of.

Yes.

<unk> fundamentally new features so thats kind of where we are on <unk>.

Thank you that's very helpful.

Jagdeep Singh: Thank you.

On the liquidity.

<unk> perspective launch customer.

Any additional color you can decline controls and initial customer feedback positive feedback from clients for example.

Winnie Dong: Your next question comes from the line of Winnie Dong with Soy Choubeck. Your line is open. Hi, thanks so much for answering a question.

Brian parameters.

Looking at in line with almost.

Our more stringent.

It goes from there.

Winnie Dong: I was wondering if you can elaborate on the challenges being runabond Michelle Deleter, more specifically on combining the high capital loading with more efficient packaging and then in the new QSC-5 format, especially what are the hurdles that need to be overcome for this combination to be successful? Yeah, it's a good question. So as we point out in the letter, if you look at the differences between the A-0 we shipped last year and the QSC-5 that we intend to ship next year, there's a few key areas that account for the biggest differences.

And in terms of smartphone.

Yes, that's a great question. So one of the criteria we had to pick. This initial launch customer was we wanted a customer of that.

We are excited about the <unk> cel as is because obviously, we don't want to have to go redesign to sell or change the form factor or do anything else that could delay our time to market.

We're.

We're pleased with this particular customer is in fact.

Cited about the capabilities of <unk>.

And I think we reported <unk> five capabilities in our last earnings call, where we showed a.

The landscape map of LNG versus power and we believe that <unk> occupies a unique space in that landscape.

Winnie Dong: One is the layer count. I'm sorry, the layer count is in fact the same. We're shipping the QSC-5 will be a 24-air cell and the A-0 that we shipped last year will also 24-air cells. So we've shown we can do that. The second thing that the QSC-5 needs to have is a higher loading capital, so specifically a roughly 5 milliamp hour per centimeter squared loading capital. The A-0 we shipped had a 3 milliamp hour capital and we showed earlier this year results from 5 milliamp hour capital.

The other thing about this customer is the volume needs that they have.

We believe we can satisfy from our <unk> facility here in San Jose.

And then the final thing about this customer is that.

The level of maturity, they're expecting is consistent with what we believe will have with our high volume be samples. So on all three of those metrics volume levels maturity levels and product functionality.

This is a very good match for what we have and Thats why were excited.

Slides back to you are excited about the capability.

Winnie Dong: I think it was on the Q2 call and we've since shipped those cells with those higher loading capital to customers. The third piece is we need to put all this into our new more efficient flex-praying package and we've mentioned on the call that we already made progress towards that in the form of reduced margins and thinner, decent layers and current collector layers, all those we think will plan to that. So when you take those three things that we've demonstrated separately and combine them together and then add to that the improvements that we're talking about with reliability that come from process control and more automation.

And we look forward to continuing to work with them closely.

Thank you so much.

Absolutely.

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

Hey, guys. Thanks for taking my question.

Zero.

Congrats on your new role.

Just maybe receiver.

With your <unk>.

New role.

Heard about.

Similar.

Your previous.

The rules.

What do you think corporates are.

<unk>.

Compared to your previous rules.

Winnie Dong: You end up with the core of what is QSC-5. So I think the way we think about it is from a risk standpoint, we've demonstrated many of the key aspects of the QSC-5 cell already separately. If you use software terminology at the unit cell level, you test level and now we just need to bring them together into an integrated cell. So it's more of an integration task but we now when we have QSC-5 then it is a task of developing fundamentally new features. So that's kind of where we are on QSC-5.

I will follow up.

Thanks Ben.

Jagdeep Singh: Thank you. That's really helpful.

<unk> has always been taking advanced technologies into very high volumes.

How do we integrate the technology into materials processes and equipment and scale it up and I have done this several times in the past.

And they came into quantum scale, that's exactly what name.

To accomplish based on the.

The technology is in a great place.

Similar demand as Dan.

The market is very large.

Up to us to know ski and want to be have into a project that we can deliver to customers and I'm looking forward to that challenge.

Jagdeep Singh: And then on the work with the perspective launch customer for QSC-5, is there any additional color you can find in terms of initial customer feedback or test and see that as far as, for example, you know, are the design parameters that this customer is looking at in line with less or more stringent than, you know, the gold standards that you're talking about. Thank you very much. Yeah, that's a great question. So, one of the criteria we had to pick this initial launch customer was we wanted a customer that was excited about the QSE5 cell as is, because, obviously, we don't want to have to go redesign the cell or change the form factor or do anything else that could delay our time to market.

Okay.

Yes, George deeper Kevin Congrats.

Congrats on the rates.

It was <unk>.

Okay.

Sure.

Deploy capital partners.

Partners <unk>.

How's that changed.

As we move forward.

I hope so.

Our partners more willing to invest capital.

Good money or how do we think about this going forward.

Sure.

Sure.

And then thank you for the question first on the 300 million gross proceeds raised.

<unk>.

We felt the timing was right based on all the momentum that we had during the year on the product with the announcement of <unk> the manufacturing process with the Raptor equipment in having passed site acceptance and then all the customer transact with the customer traction that Jackie mentioned, where we're working with a person.

Jagdeep Singh: So, we're pleased that this particular customer is, in I think we reported on the QSE5 capabilities in our last earnings call, where we showed a landscape map of energy versus power, and we believed that QSE5 occupies a unique space in that landscape. The other thing about this customer is that the volume needs that they have, we can satisfy from our QSE5 facility here in San Jose, and then the final thing about this customer is that the level of maturity they're expecting is consistent with what we believe will have with our higher volume B samples.

<unk> launch customer in the in the automotive space for that initial high visibility small volume launch.

Moving forward I would also.

Highlight that in prior calls we are open to multiple different business models in the fullness of time, we see options with wholly owned capacity as is the case with <unk> zero.

<unk> venture relationships, which youre, well familiar with as well as licensing relationships and separately as we've also discussed on prior calls there is a lot of momentum behind investments in clean energy, specifically closed loop domestic supply chain here in the United States. Those are also things, which we are.

Jagdeep Singh: So, on all three of those metrics, volume levels, maturity levels, and product functionality, this is a very good match for what we have, and that's why we're excited, that's why both sides, frankly, we're excited about the capability, and we look forward to continuing to work with them closely. Thank you so much. Absolutely.

Track those those opportunities to be as capital light and efficient with the capital that we do have as possible.

Ben Callow: Sorry, your next question comes from the line of Ben Callow with Baird. Your line is open. Hey guys, thanks for taking my question. I see the congrats on the new role. Just maybe see with your new roles, we heard about what's similar to your previous roles. What do you think the difficulties are compared to your previous roles in Iowa follow? Thanks Ben. My prior role has always been taking advanced technologies into very high volumes.

Sure.

Maybe last one I'll figure.

Everything going on.

W.

<unk>.

In the world.

Yes.

Are you seeing any of your partners pull back from.

Relationships.

Wines.

Partnerships with yours.

I would almost say the opposite I think with.

Turmoil in.

And in the World.

The growing realization for the importance for the penetration of electric vehicles.

Direct and indirect jobs that can bring importance to the environment that we actually see more excitement around the space and then within that what differential battery technology like we're working with it has the prompts to completely shift out the power and energy frontier as our.

Ben Callow: How do we integrate the technology into materials processes and equipment and scale it up? And I have done this several times in the past. When I came into quantum scale, that's exactly what I am hoping to accomplish very soon. The technology is in a great place. The customer demand is there. The market is very large.

<unk> five while eliminating as manufacturing one of the two components is a pretty amazing thing and we remain.

Excited and as we've talked about that's just the start of what are our technology platform promises.

Siva Sivaram: It's up to us to now scale what we have into a product that we can deliver to customers, and I'm looking forward to that challenge.

Thank you guys.

Once again, ladies and gentlemen, if you have a question. It is star one on your telephone keypad.

Kevin Hettrich: Dr. Deepen Kevin, congrats on the race. It was smart. As you deploy capital and you have partners come in, how does it change as we move forward and you test out some partners who are willing to invest capital so you can save the money. Or how do we think about this going forward with your capital deployment? Yes Ben, thank you for the question. First, on the 300 million gross perceived raise, we felt the timing was right based on all the momentum that we had during the year.

Your next question comes from the line of Jordan Levy with <unk> Securities. Your line is open.

Hi team. This is Henry on for Jordan I, just wanted to firstly touch on the Capex savings.

Realized.

So far and expect to realize by the end of the year.

Just wanted to touch on I guess any color you can add around some of the different puts and takes there was that material costs coming down more efficient installation through processes and are there any learnings you guys are going to take we can take into 2024 and beyond.

Yeah.

It's a good question.

Philosophically, we think about this in terms of big projects and small projects, we regularly get together.

Kevin Hettrich: On the product with the announcement of the QSE5, the manufacturing process with the Raptor equipment, in having passed that acceptance and then all the customer traction that Jeggy mentioned where we're working with a prospective launch customer in the automotive space for that initial high visibility small volume launch. Moving forward, I would also highlight that in prior calls we are open to multiple different business models in the in the fullness of time.

As a team and think through things that we can do differently or smarter to save Capex is the same is true with Opex and then also I think the whole company has rallied around the idea of spending more smartly and more effectively and we also encourage and then.

We celebrate ideas that folks springboard that we then put into actions.

So.

And then when you break it down it's really that.

Kevin Hettrich: We see options with volume and capacity as in the case with QSERO. Join venture relationships, which you're well familiar with as well as licensing relationships. And separately, as we've also discussed on prior calls, there's a lot of momentum behind investments in clean energies, specifically closed loop domestic supply chains here in the United States. Those are also things which we track those opportunities to be as capital light and efficient with the capital that we do have as part.

That one third of savings that I referenced in my script is actually broken down into a lot of smaller.

Smaller projects, that's definitely credit to the broader company <unk> or realizing.

I think it's also important as we transition from a product development company to one of manufacturing that that has to be in our very DNA.

That's great to hear and then just a quick follow up on some of the recent graphene export news out of China.

I'm just wondering if you guys are seeing at all any abuse and interesting and your technology with some of these geopolitical risks around battery materials.

Kevin Hettrich: I think it's possible. Maybe the last one. I'll stick in. This is what's everything going on. I don't know, UHW, everything in the world. Have you seen any of your partners pull back from relationships and timelines or partnerships with the US? I would almost say the opposite. I think with term oil in the world and the growing realization for the importance for the penetration of electric vehicles, both the direct and indirect jobs, they can bring the importance to the environment that we actually see more excitement around the space.

Starting to play out a little bit and do you think this will have a pretty large effect or pretty minimal on the long term kind of demand for solid state versus some of the other factors like higher energy density and the performance enhancements.

Henry Terrific question from an industry point of view are our design eliminates the graphite anode materials from the cell, which this has two advantages as you point out it eliminates a supply chain bottleneck and associated risks of securing supply in a crowded market and second as you also.

<unk> and eliminating the anode host material, we realized benefits in terms of energy density and charge time of course to do this.

You will need a highly stable solid state separator, which is our core IP.

Kevin Hettrich: And then within that, what differential battery technology like we're working with that has the problems to completely shift out the power and energy frontier as our QSC 5. While eliminating as manufacturer, one of the two components, it's a pretty amazing thing. And we remain excited. And as we talked about, that's just the start of what are our technology platform promises.

Thank you guys.

Your next question comes from the line of Chris Snyder with UBS. Your line is open.

Thank you.

Want to ask on the AE zero 24 layer product prototypes and specifically that first chart in the shareholder letter, which shows on the test results from our customer battery lap clearly really strong results there.

Kevin Hettrich: Thank you guys.

Operator: Once again, ladies and gentlemen, if you have a question, it is star one on your telephone keypad.

But the letter dose most of this was the best performing cell. So maybe could you just frame this a little bit more for us whether it's kind of was this one sell out of how many anything around just the delta between.

Henry: Your next question comes from the line of Jordan Levy with two securities. Your line is open. Hi, team. This is Henry on for Jordan. I just want to firstly touch on the Quebec Savings y'all have realized so far and expect to realize by the end of the year. If you want to touch on, I guess any color you can add around some of the different puts and takes there was that material cost coming down more efficient solutions to processes and other any learning you guys are going to take or can take into 2020 form beyond.

This particular selling the RASK was it wasn't a big outlier.

Are they all generally similar any way just kind of frame that Marc Thank you sure.

Sure happy to do that first of all as we've said many times.

Our earnings calls this year, we have worked into our reliability. So.

That's a key area that we're focused on to make the cells more and more reliable to every cell works as well as the vessel, having said that though with the caveat about reliability.

Kevin Hettrich: Good question. Phil, softly, we think about this in terms of big projects and small projects. We regularly get together as a team and think through things that we can do differently or smarter to save capex. This is the same as is through an op X. And then also I think the whole company is rallied around the idea of spending more smartly and more effectively. And we also encourage and then publicly celebrate ideas that folks bring forward that we then put into actions.

Kevin Hettrich: So that's and then when you break it down, it's really that that one third of savings that I referenced in my script is actually broken down into a lot of smaller projects that's definitely credit to the broader company for realizing.

The capacity retention curves that you're seeing here is actually very similar to what we see for most.

Most of the cells that we've shipped in other words.

In other words, the the slope of this curve.

Is really.

Very similar across the cells.

<unk>.

And what this all shows is that is that when we make the cells.

A sufficiently low level of deep activity.

End up with it.

It really as you point out a remarkable level of performance because 95% capacity retention at a 1000 cycles.

To our knowledge is unheard of for lithium metal cells with a solid or liquid as you point out. This test was one.

Kevin Hettrich: I think it's also important as we transition from a product development company to one of manufacturing that that has to be in our very DNA.

In.

Our automotive OEM partners lab right. So it's there their test using their equipment using their test protocols.

We're just really excited that that.

Henry: That's great to hear and then just a quick follow up on some of the recent graphite export news out of China. I'm just wondering if you guys are seeing it all any boost and interest in your technology with some of these geopolitical risks around battery materials going to start to play out a little bit. And you think this will have a pretty large effect or pretty minimal in the long term kind of demand for solid state versus some of the other factors like higher energy density in the performance of hands.

This demonstrates this is really the purpose as you know the sample is to demonstrate the capability of the core technology.

Of course, when you get to be sample. That's what you have to get the things like <unk>.

Implementing that sample.

Capability with.

With production processes and Thats when the reliability of Salon become more more important factors. So the short answer to your question is the capacity retention curves that we're showing here is very similar to what we see across the board we.

Jagdeep Singh: Thanks. Henry, a terrific question. From an industry point of view, our design eliminates the graphite anode material from the cell, which this has two advantages. As you point out, it eliminates a supply chain bottleneck and associated risks of securing supply in a crowded market. And second, as you also alluded to, in eliminating the anode host material, we realize benefits in terms of energy density and charge time. Of course, to do this, you will need a highly stable solid state separator, which is our core IP.

Jagdeep Singh: Thank you guys.

We do have worked into our liability to make sure every cell goes the distance, but in terms of the overall behavior, but we're really excited by this result it shows.

With the inherent capability and our view of what our lithium metal zero Edward design is capable of.

Yeah happy to hear that and really appreciate all that color.

Maybe for my second question.

I wanted to ask on the consumer electronics.

Climate Scape historically, you guys have been focused more on the auto market.

Chris Snyder: Your next question comes from the line of Chris Snyder with UBS. Your line is open. Thank you. I wanted to ask on the A024 layer prototype cell. Specifically, that first chart in the in the shareholder letter, which shows the test results from a customer battery lab. Clearly, really strong results there. But the letter does note that this was the best performing cell. So maybe could you just frame this a little bit more for us, whether it's, you know, kind of was this one cell out of how many anything around just the delta between, you know, this particular cell and the rats. Was it was it a big outlier? You know, are they all generally similar? And anyway, just kind of frame that that more. Thank you.

This year, you've talked more about <unk>.

<unk> electronics opportunities the letter talks about a technology evaluation agreement with a leading.

Electronics player.

So I guess my question is do you think the company's first commercial products that generate revenue is more likely to be in auto.

Or consumer electronics. Thank you.

Yes, thanks for the question and the opportunity brought by the support of all I want to be Crystal clear.

Our focus has been and continues to be an remains automotive.

It is our our.

The primary focus that is the space within which this.

Initial launch customer that we've been talking about is in.

Jagdeep Singh: Sure. First of all, as we said, many times in earnings calls this year, we have worked into our reliability. So, you know, that that's a key area that will focus on to make the cells more, more liable. So every cell works as well as the best cell. Having said that, with the caveat about reliability, the capacity retention curve that you're seeing here is actually very similar to what we see for most of the cells that we've shipped in the words.

And those are the partnerships that we are working very closely with we talk about consumer however, because we believe what we have is a technology platform, we're getting a lot of interest from a lot of different sectors.

We believe.

It behooves us almost only to our investors too.

Explore all those options keep them in the way.

But we don't in any way intend to let that distract us from our primary focus which is of course automotive there are several reasons for this one of course is.

Jagdeep Singh: In the words, the the slope of this curve is really very similar across the cells. And what this cell shows is that is that when we make the cells with a sufficiently low level of deep activity, we end up with a really, as you point out, remarkable level of performance, because 95% capacity retention at a thousand cycles to our knowledge is unheard of for lithium metal cells with a solid or liquid.

Is the fact that if you get to Defocus, then you can end up with a situation where you do nothing well, we got to do one thing and do it really well.

But the other is that sector. We think is by far the largest sector in terms of the size and growth potential.

So.

The way I would summarize it as its our focus remains unchanged on the automotive space with our primary market. However, we have said before that we have a.

We called it a.

Singletrack dual purpose designed what we mean by that is the same product.

Jagdeep Singh: And as you point out, this test was run in our automotive oil and partners lab. So it's their test using their equipment using their test protocols. And we're just really excited that this demonstrates. This is really the purpose. As you know, the A sample is to demonstrate the capability of the core technology. And then, of course, when you get to B sample, that's when you have to get the things like implementing that sample or that capability with production processes.

In this more vector.

We think has relevance to not only automotive but also consumer.

So.

By continuing on that single track.

We can serve both purposes by up to a point at which point, we will have to obviously, if you're doing the actual consumer product, we will have to make some modifications but for the time.

We see no no distraction and we continue to focus on automotive while.

Working with some of the consumer part is as well.

Jagdeep Singh: And that's when the reliability of so on become more, more important factor. So the short answer to your question is the capacity retention curve that we're showing here is very similar to what we see across the board. We do have work into our reliability to make sure every cell goes the distance. But in terms of the overall behavior, we're really excited by this result. It shows where the inherent capability and our view of what a lithium metal zero anode design is capable of, is happy to hear that and really appreciate all that color.

Thank you John deep appreciate that.

Okay.

Your next question comes from the line of Gabe Daoud with TD Cowen Your line is open.

Hey, Jackie Kevin and team Thanks for taking my questions.

Was hoping we could maybe just go back to that first chart that Chris noted in the shareholder letter I guess I'd just be curious as to why.

Prospective launch customer ran.

<unk> C C over three super to charge this charge.

Just kind of curious why they wouldnt around like a <unk>.

Jagdeep Singh: Maybe from my second question, I want to ask on the consumer electronics. Quantumscape historically, you guys have been focused more on the auto market. This year, you've talked more about consumer electronics opportunities, the letter talked about a technology evaluation agreement with a leading electronic player.

Yeah, Let's say, it's a good question obviously Dave.

They've added a <unk> because that's the test that they wanted to run.

We as you know many of our tests, we report <unk>, we do that for two reasons. One is <unk> is even more aggressive because.

Charges and discharges.

Tire battery now or so.

It's going to be hard to discharge and actual battery in a car in an hour.

Jagdeep Singh: So I guess my question is, do you think the company's first commercial product that generate revenue is more likely to be an auto or consumer electronics? Thank you. Yeah, thanks for the question and the opportunity for this. First of all, I want to be crystal clear, our focus has been and continues to be and remains automotive. That is our primary focus. That is the space within which this initial launch customer that we've been talking about is in and those are the partnerships that we are working very closely with.

The annuity run down.

300 miles of charge a war in one hour, which is hard to do.

In terms of charging off the battery one hour charge is typically considered to be a supercharge level of charging and most automotive Oems most of Evs are not charged on a supercharger for every single charge, we do it that way because we think our technology is capable of it.

And be it allows us to collect data much more quickly. So we can have a faster cycle time, which of course as you know is key to learning and improving and continuing to execute.

But having said that from a customer standpoint silver three may in fact be more typical of what a typical OEM sees for a charge related to three hour charge. So if you plug in India car R&D, a garage overnight it might even be lower than that but that's kind of what they are.

Jagdeep Singh: We talked about consumer, however, because we believe what we have is a technology platform. We're getting a lot of interest from a lot of different sectors. And, you know, we believe it behooves us, we almost owe it to our investors to explore all those options, keep them in the running. But, you know, we don't in any way intend to let that distract us from our primary focus, which is of course automotive.

I can't speak for the customer, but apparently that's what they've standardized on although with a C over to discharge.

So our what we're doing here gave us simply reporting data that was provided to us.

Jagdeep Singh: There are several reasons for this. One of course is, is the fact that, you know, if you get too deep focused and you can end up in a situation where you do nothing well, we got to do one thing and do it really well. But the other is that sector we think is by far the largest sector in terms of size and growth potential. So, you know, the way I would summarize it is that our focus remains unchanged on your own space of our primary market.

Hi, this automotive OEM customer they get to decide the test conditions under which they run and that's why we reported this.

What we think is notable as just the.

The capacity retention.

We see here alluded twentyfold ourselves is really remarkable and we mentioned this because.

As you know when we went public a few years ago one of the questions.

Jagdeep Singh: However, we've said before that we have a, I think we called it a single track dual purpose design. What we mean by that is the same product in this more vector. We think has relevance to not only automotive, but also consumer. And so, you know, by, by continuing on that single track, we can, we can serve both purposes up to a point at which point we'll have to be obviously, if we're building an actual consumer product, we'll have to make some modifications. But for the time being, we, we see no distraction and we continue to focus on automotive while working with some of the consumer partners as well. Thank you, John. I appreciate that.

Some people had was Greg you guys have shown some fantastic data at a single cell level can you replicate this multilayer ourselves and what this data.

Demonstrates to us is that not only can we do.

This multilayer cells in this case 20 for yourselves.

But.

But that 24 there is of course, the same layer count that we're targeting for our first commercial product to USD five and at that 24. There are several cell level, we're seeing what we believe is industry leading.

Our performance in terms of capacity retention compared to any other lithium metal sales that we've seen so we think it's an important data point that we thought it was worth sharing with investors.

Especially because it was generated in a customer's lab by.

Gabe Dowd: Your next question comes from the line of Gabe Dowd with TD Cowan. Your line is open. Hey, I gave Kevin and the team. Thanks for taking my questions. We're hoping we can maybe just go back to that first chart that Chris noted in the shareholder letter, I guess. I just be curious as to why the perspective launch customer ran the test out of C, C over 3, C over 2, charge the charge.

By the customer using their own test protocols and their own test conditions.

Definitely makes sense. Thank you Jackie.

Clarification and color and I guess, just a quick follow up.

Noted the layer count and obviously our goal. This year is just the higher capital loading.

Just curious I think last quarter you guys showed.

Higher cathode learning so that was maybe a couple of layers. So I was curious if there is any update around that performance and cycle life and capacity to retention and I guess when can we expect to see some data.

Gabe Dowd: It just kind of curious why it would run like a one C. Yeah, so it's a good question. Obviously, they ran it and it's C over 3, C over 2 because that's the test that they wanted to run. You know, we, as you know, many of our tests, we report one C one C, we do that for two reasons. One is one C one C is even more aggressive because, you know, it charges and discharges the entire battery in an hour.

With the two combined meeting higher layer count with the with.

With the higher capital loading thanks, guys.

That's a great question and Thats exactly the task that we are currently focused on is to take this 24 lay ourselves that we showed.

That we shipped last year, the data from which we were showing in this better add to it the higher loading capital.

Gabe Dowd: So it's going to be far to discharge an actual battery in a car in an hour. You have to really run down, you know, 300 miles of charge or more in one hour, which is hard to do. And in terms of charging up the battery, one hour charge is typically considered to be a supercharged level of charging. And most automotive volumes, most EVs are not charged on a supercharger for every single charge.

Add to it the more efficient packaging as I mentioned, the thinner a decent layers narrow margins at the edges filler contractors add to it some improvements we're making to reliability.

And then and then that becomes <unk> five so.

The answer the question of when we expect to have that as next year sometime in 2024.

Gabe Dowd: We do it that way because we think our technology is capable of it and it allows us to collect data much more quickly so we can have a faster cycle time, which of course, as you know, is key to learning and improving and continuing to execute. Having said that from a customer standpoint, CO3 may in fact be more typical of what typical OEMCs for a charge rate to 3 hour charge. So if you're putting in a car into your garage overnight, you know, it might even be longer than that.

And I can say that.

The.

In general the testing results from the higher loading cathodes.

<unk> <unk>.

Similar to what we've seen before which is basically we have worked into our reliability, but the overall.

Outside of that says as capacity retention.

Fast charge.

<unk> is quite good in fact, I think we published fast charge results.

In the last earnings letters.

The update is there for you to look at but.

Gabe Dowd: That's kind of what they, you know, I can't speak for the customer, but apparently that's what they standardize on along with the CO2 discharge. So our, what we're doing here, again, is simply reporting data that was provided to us by this automotive OEM customer. They get to decide the test conditions under which they run, and that's why we reported this. Well, we, what we think is notable is just the The capacity retention that we see here, with a 24-layer cell is really remarkable and we mentioned this because, you know, as you know, when we were in public a few years ago, one of the questions some people had was great.

The basic idea is in 2024.

<unk>.

So basically combine this twentyfold ourself with the high loading cathode the more efficient packaging.

The improvements to the liability that were putting putting them into our process.

And Judy.

Thank you.

We did we did publish fasteners data in Q2 letter and then also as a.

<unk>.

It is more capital efficient to do development work on a small layer count as possible such as another example of us being as.

Effective entering with capital as possible.

Got it thanks for that Kevin Thank you guys.

Gabe Dowd: You guys have shown some fantastic data at a single-layer cell level can replicate this in multi-layer cells and what this data demonstrates to us is that not only can we do this in multi-layer cells, in this case, 24-layer cells, but that 24-layer cell is, of course, the same bare count that we're targeting for our first commercial product, USC Vive, and at that 24-layer cell level, we're seeing what we believe is industry-leading performance in terms of capacity retention compared to any of the lithium metal cells that we've seen. So we think it's an important data point and we thought it was worth sharing in investors, especially because it was generated, you know, in a customer's lab, by the customer using their own test protocols and their own test conditions.

Good question <unk>.

There are no further questions at this time I will turn the call to Jack for closing remarks.

Okay with that I'd like to thank you all for joining US I would also like to thank our team for their excellent work this quarter and of course, thank our shareholders for their continued support of our mission and I look forward to sharing more as we continue ahead.

This concludes today's conference call. Thank you for joining you may now disconnect your lines.

More as we continue ahead.

At this point.

Jagdeep Singh: Definitely my thanks, Jack, for the clarification and caller and I guess just a quick follow-up you noted the layer count and obviously a goal this year is just to hire castle loading. Just curious, I think last quarter, you guys showed a higher castle loading cell that was maybe a couple layers. So it's curious if there's any update around that performance and psycho-life and capacity retention and I guess when can we expect to see from data with the two combined, meaning, you know, higher layer count with the higher castle loading?

Jagdeep Singh: Thanks, Jack. That's a great question and that's exactly the task that we're currently focused on is to take this 24-layer cell that we showed that we shipped last year, the data from which we were showing in this manner, add to it the higher loading cap on, add to it the more efficient packaging, as I mentioned, the thinner adhesive layers, narrow margins at the edges, thinner current connectors, add to it some improvements from making to reliability, and then that becomes our USC Vive.

Jagdeep Singh: So as a question of when we expect to have that is next year sometime in 2024 and I can say that, you know, in general, the testing results from the higher loading capels are similar to what we've seen before, which is basically we have worked to do our reliability, but the overall behavior outside of that. That's just the capacity retention and past charge is quite good. In fact, I think we published past charge results in the last early letters, so the update is there for you to look at, but the basic idea is in 2024, we plan to basically combine this 24-layer cell with the higher loading cap code, the more efficient packaging and the improvements to the library that we're putting into our process.

Jagdeep Singh: We did we did publish faster data and key to letter and then also it is a, it is more capital efficient to do development work on a small layer count as possible such as another example of us being as effective and bring with capital spots. Thanks for that, Kevin. Thanks, guys. Yeah, good question. There are no further questions at this time.

Jagdeep Singh: I will turn the call to Jagdeep for closing remarks. Today's conference calls. Thank you for joining. You may now disconnect your lines. More as we continue ahead.