Q1 2024 QuantumScape Corp Earnings Call

Operator: Good day and welcome to Quantumscape's first quarter 2024 earnings conference call. John Saiger, Quantumscape's Vice President of Capital Markets and FP&A, you may begin your comments.

Good day and welcome to quantum escapes first quarter 2024 earnings conference call.

John Joseph Saager: John favor.

John Joseph Saager: Quantum's Capes, Vice President of capital markets and F. PNA you may begin your conference.

John Joseph Saager: Thank you, operator. Good afternoon, and thank you to everyone for joining Quantumscape's first quarter 2024 earnings call. To supplement today's discussion, please go to our IR website at ir.quantumscape.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 is posted on our website as part of our quarterly update. Overlook and statements generally relate to future events, future technological progress, or future financial or operating performance.

John Joseph Saager: Thank you operator, good afternoon, and thank you to everyone for joining quantum's, Gabe 's first quarter 2024 earnings call.

John Joseph Saager: Implement today's discussion. Please go to our IR website at IR Dot quantum state Dot com to view our shareholder letter.

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

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

John Joseph Saager: Our expectations and beliefs regarding these matters may not materialize. The 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, Form 10-K, and other SEC filings, including uncertainties posed by the difficulty in predicting future outcomes. Joining us today will be Quantumscape's CEO, Dr. Siva Sivaram, and our CFO, Kevin Hettrich. With that, I'd like to turn the call over to Siva.

Speaker Change: 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.

Speaker Change: 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 posed by the difficulty of predicting future outcomes.

Susan: Joining us today will be quantum escape CEO, Dr. <unk>, <unk>, and our CFO, Kevin Patrick with that I'd like to turn the call over to Susan.

Susan: Thank you John.

Siva Sivaram: At the beginning of this year, we laid out four key goals for 2024 to help investors follow our progress as we move from prototype to product, begin shipment of Alpha 2 prototype battery cells, ramp up our Raptor fast-separated production process, begin low-volume B0 prototype production of our first commercial product, QSC-5, and prepare our COBRA process to support higher volumes of QSC-5 in 2025. We announced on March 27th that we started shipments of six-layer Alpha 2 prototype battery cells to automotive customers, which is the first of our four key goals for 2020. This is a key deliverable in our engagement with our prospective launch.

Susan: At the beginning of this year, we laid out four key goals for 2024 to help investors follow our progress as we move from brokerage type of product.

Susan: Beginning shipment of Alpha prototype battery cells.

Susan: The ample adapted separated production process.

Speaker Change: Begin low volume <unk> broker type production.

Speaker Change: First commercial product <unk>.

Speaker Change: And prepared our cobalt prices to support higher volumes of <unk> in 2025.

Speaker Change: We announced on March 27 that we started shipments of six layered alpha prototype battery cells.

Speaker Change: Lokomotiv customers.

Speaker Change: I guess the first offer four key goals for 2024.

Speaker Change: This is a key deliverable and our engagement with other prospective launch customer.

Siva Sivaram: The Alpha 2 prototype combines higher-loading cathodes with our flex-frame cell format and improvements to packaging efficiency, tighter internal margins, thinner current collectors, and a slimmer design. Alpha 2 is important because, when combined with Raptor films and other refinements and incorporated into an approximately 5 amp hour design, it represents the core of QSC5. The Alpha 2 design is intended to serve as an effective demonstration platform for customers to preview important electrical performance capabilities of the planned QSC5. Customer feedback is the most critical input in the product development cycle, as it provides insight into areas that need improvement and strengthens collaboration.

Speaker Change: Now also to prototype combined higher loading caseloads.

<unk> cream cell format and improvements to packaging efficiency.

Speaker Change: Data Internet margins.

Speaker Change: Isn't that a current collectors and is limited to Zhang.

Speaker Change: Also too is important because when combined with the Doctor films and other refinements and incorporated into our approximately five empower design. It represents the core of <unk>.

Speaker Change: That in fact do design is intended to serve.

Speaker Change: <unk> demonstration platform for our customers to preview important electrical performance capabilities of the <unk> five.

Speaker Change: Customer feedback is the most critical input in the product development cycle as it provides insight into areas that need improvement and strengthened collaboration.

Siva Sivaram: In our shareholder letter, we published data on four key performance features of Alpha 2 cells. The first of these is discharge power, which relates directly to vehicle acceleration in high-performance applications. Alpha 2 prototypes are capable of up to 10C discharge rates, which in a 100 kilowatt hour pack would be nominally equivalent to over 1,000 hertz. We believe this translates to a compelling combination of energy and power compared to conventional lithium-ion cell design.

Speaker Change: In our shareholder letter, we published data on four key performance features of Alpha <unk>.

Speaker Change: The first of these is discharged power, which relates directly to vehicle acceleration in high performance applications.

Speaker Change: So two prototypes are capable of up to 10-C discharge rates.

Speaker Change: In the 100 kilowatt hour pack will be nominally equivalent to over 1000 horsepower.

Speaker Change: We believe this translated to a compelling combination of energy.

Speaker Change: And power compared to conventional lithium ion cell designs.

Siva Sivaram: Second, fast charging is an important feature for EV applications. Improving on previous results, Alpha 2 prototypes demonstrated the capability to fast charge from 10% to 80% of their state of charge in less than 15 minutes. Third is low temperature performance. Conventional EV battery performance can be significantly impaired when ambient temperature drops below freezing, while we have the potential to offer good energy density and hence range across the spectrum of operating temperatures down to minus 25 degrees Celsius.

Speaker Change: Second <unk>.

Speaker Change: Fast charging is an important feature for <unk> applications.

Speaker Change: Improving on previous visits I also have two prototypes have demonstrated the capability to fast charge from 10% to 80% in state of charge in less than 15 minutes.

Third is low temperature performance.

Speaker Change: Conventional EV battery performance can be significantly impaired when ambient temperature drops below freezing.

Speaker Change: Our cells have the potential to offer good energy density and hence the range across the spectrum of operating temperatures down to minus 25 degrees Celsius.

Speaker Change: Last is that advances in applied pressure.

Siva Sivaram: Last but not least, advances in applied pressure. As a remainder, some solid-state battery technologies can appear to deliver acceptable performance when put under high externally applied pressure. We are aware of various solid-state battery groups reporting cycling results using test pressures from 20 atmospheres to as high as 750 atmospheres. However, such high pressures are impractical for real-world EV applications.

Speaker Change: As a reminder.

Speaker Change: <unk> solid state battery technologies can appear to deliver acceptable performance when put in the high externally applied pressure.

Speaker Change: We are aware of various solid state battery groups reporting cycling the cells using disappearing.

Speaker Change: From 'twenty atmospheres, two assay of 750 atmosphere.

Speaker Change: Such high pressures are impractical for real World EV applications.

Siva Sivaram: In the Alpha 2 prototype, we have now reduced externally applied pressure to 0.7 atmospheres, within the range currently present in conventional EV battery pack design, and we believe this allows us to integrate ourselves into existing PAC concepts. We continue to target zero-pressure designs for consumer electronics applications.

Speaker Change: In the alpha to broker type we have noted used externally I played present to 0.7 atmosphere.

Speaker Change: Within the range currently present in conventional EV battery pack designs.

Speaker Change: And we believe this allows us to integrate ourselves into existing pack concepts.

Speaker Change: We continue to target zero operation designed for consumer electronics applications.

Siva Sivaram: We believe the combination of these capabilities, planned for QSE 5, represents an unmatched value property, and Alpha 2 represents an important step forward as we work towards ramping up our manufacturing capabilities and improving the reliability performance of our. Now, a word on our production outlook. Our current generation separator production process will continue to serve ongoing alpha 2 sample production for customer shipment and internal testing in Q2. In parallel, increased production from the new RAPTOR process will allow us to gather larger volumes of cell testing data to validate safety and reliability improvements. Accelerate process improvement of downstream cell assembly steps, and begin production of the QSP5B0 sample.

We believe the combination of these capabilities planned for Q C. Five represents an unmatched value proposition and also to represent an important step.

Speaker Change: Hardware as we work towards ramping up our manufacturing capabilities and improving the reliability performance of our sales.

Speaker Change: Now a word on our production outlook.

Speaker Change: Our current generation separate their production process will continue to serve ongoing I'll start with <unk> production for customer shipment and internal testing in Q2.

Speaker Change: In parallel.

Speaker Change: Increased production from the new adaptive process will allow us to gather larger volumes of cell testing data.

Validated safety and reliability improvements.

Speaker Change: Accelerated process improvement of downstream cell assembly steps and.

Speaker Change: And begin production of Q S E D zero sampled.

Siva Sivaram: Most of the upstream and downstream automation equipment that serves the Raptor heat treatment equipment has completed or is undergoing site acceptance. The RAPTOR process has shown encouraging improvements with respect to certain critical-to-quality metrics. In addition to the planned Raptor ramp, we are also streamlining cell assembly processes by simplifying the bill of materials, consolidating process steps, and increasing automation to enable a smooth ramp of cell production. While supporting initial production of QSC-5 prototype cells, Raptor also serves as a learning platform for our next generation of separated production, the COBRA product.

Speaker Change: Most of the upstream and downstream automation equipment that serves that after the heat treatment equipment has completed.

Speaker Change: Undergoing site acceptance testing.

Speaker Change: Thereafter, the process has shown encouraging improvements.

Speaker Change: Victor certain critical to quality metrics.

Speaker Change: In addition to the planned adapt to them. We're also streamlining cell assembly processes. They simplify the bill of materials consolidating process steps and increasing automation to enable a smooth ramp of cell production.

Speaker Change: While supporting initiated production of USD five broker timeshare factor.

Speaker Change: <unk> also serves as a learning platform for our next generation of separated production the Cobra that process.

Siva Sivaram: COBRA is intended to combine the fundamental process innovations pioneered by Raptor with specialized equipment capable of realizing the full potential of fast, separated production. The COBRA process is necessary to enable higher volumes of QSC-5 prototype production in 2025. Last, a word on our strategic outcome. We remain tightly focused on bringing our first commercial solid-state lithium metal battery cell to market for electric vehicle applications. Achieving this ambitious goal requires three major elements: differentiated technology.

Speaker Change: Cobra is intended to combine the fundamental process innovations pioneered by adapter with specialized equipment capable of realizing the full potential of fast separate in production.

Speaker Change: The cobra that processes necessary to enable higher volumes of <unk> production in 2025.

Speaker Change: Last a word on our strategic outlook.

Speaker Change: We remain tightly focused on a singular goal bringing.

Bringing our first commercial solid state lithium metal batteries sold to market, but electric vehicle application.

Speaker Change: Achieving this ambitious goal requires three major elements.

Speaker Change: Differentiated technology.

Siva Sivaram: Close customer engagement, and Methodical Execution of Our Miles. On the first point, we believe the performance differentiation of our solid-state lithium metal technology continues to be clear, as successive iterations of samples have demonstrated. On the customer front, we are increasing our focus on intensive collaboration with our automotive partners, including our prospective launch customers. And finally, we continue to pursue a disciplined approach to product development and process deployment. While we still have significant work ahead of us,

Speaker Change: Close customer engagement.

Speaker Change: And methodical execution of our milestones.

Speaker Change: On the first point, we believe the performance differentiation upward solid state lithium metal technology continues to be clear.

Speaker Change: Sexism installations of samples have demonstrated.

Speaker Change: On the customer front, we are increasing our focus on intensive collaboration with automotive partners, including prosper to launch customer.

Speaker Change: And finally, we continue to pursue a disciplined approach to product development and process deployment.

Speaker Change: While there is still significant work ahead of us.

Siva Sivaram: We are as enthusiastic as ever about our technology and its potential impact, and we look forward to sharing more details over the months to come. With that, I'll hand over to Kevin for a word on our financial outlook.

Speaker Change: We are as enthusiastic as ever about our technology and its potential impact and we look forward to sharing more details over the months to come.

Speaker Change: With that I'll hand over to Kevin.

Kevin Hettrich: Third on our financial outlook.

Kevin Hettrich: Capital expenditures in the first quarter were $14.1 million. Q1 CapEx primarily supported low volume QSC-5 prototype production targeted for later this year, as well as the COBR process and other equipment as we prepare for higher volume QSC-5 prototype production in 2025.

Kevin: Capital expenditures in the first quarter were $14 1 million.

Kevin: Q1, Capex, primarily supported low volume <unk> prototype production targeted for later this year.

Kevin: As well as the Cobra process and other equipment as we prepare for higher volume <unk> five prototype production in 2025.

Kevin Hettrich: We maintain our full year 2024 guidance for capital expenditures to be between $70 million and $120 million. GAAP operating expenses and GAAP net loss were $131.9 million and $120.6 million, respectively; adjusted EBITDA loss was $76.2 million in Q1. The table reconciling GAAP net loss and adjusted EBITDA can be found in the financial statements at the end of the shareholder letter.

We maintain our full year 2024 guidance for capital expenditures to be between $70 million and $120 million.

Kevin: Operating expenses and GAAP net loss for $131 9 million and $126 million respectively.

Kevin: Adjusted EBITDA loss was $76 2 million in Q1.

A table reconciling GAAP net loss and adjusted EBITDA can be found in the financial statements at the end of the shareholder letter.

Kevin Hettrich: We maintain our full year 2024 guidance for adjusted EBITDA losses to be between $250 million and $300 million. This guidance reflects our efforts to maintain our commercialization timeline while conserving cash and extending our runway, primarily by focusing on processing. We ended the quarter with $1.01 billion in liquidity, strongly positioning the company as we transition from prototype to product and prepare for subsequent industrialization. We continue to be prudent with our balance sheet and reiterate our forecast that our cash runway will extend into the second half of 2026.

Kevin: We maintain our full year 2024 guidance for adjusted EBITDA loss to be between $250 million and $300 million.

Kevin: This guidance reflects our efforts to maintain our commercialization timeline, while conserving cash and extending our runway primarily by focusing on process improvements.

Kevin: We ended the quarter with 1.01 billion in liquidity strongly positioning the company as we transitioned from prototypes of product and prepare for subsequent industrialization.

Kevin: We continue to be prudent with our balance sheet and reiterate our forecast that our cash runway will extend into the second half of 2026.

Kevin Hettrich: Any additional funds raised from capital markets activity, including under our ATM prospectus supplement, would further extend this cash runaway. In the 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 relations.

Kevin: Any 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.

John Joseph Saager: Thanks, Kevin.

John Joseph Saager: Thanks, Kevin. We'll begin today's Q&A portion with a few questions we've received from investors, or that I believe investors would like to know more about. Siva, could you give investors any initial impressions after your first few months as CEO? John, it's been an

Kevin: Thanks, Kevin will begin today's Q&A portion with a few questions. We've received from investors or that I believe investors would be interested in.

Kevin: Sure could you give investors any initial impressions. After your first few months as CEO.

Siva Sivaram: John, it's been an exciting eight months since I joined Quantum. The first thing I want to mention is that the team at Quantumscape is extraordinary in the depth of knowledge they have in battery technology and science. Equally impressive is their commitment to the Quantumscape mission of revolutionizing energy. I've also been very pleased with the level of interest and involvement. The level of partnership and the customer intimacy is truly high.

Kevin: John it's been an exciting eight months since he joined quantum scale.

Kevin: So first thing I want to mention is that the team at Cornell escape is extraordinary and the depth of knowledge they have in vaccine technology and science.

Equally impressive is their commitment to the <unk> mission of revolutionizing energy storage.

Kevin: I've also been very pleased with the level of interest and involvement from the customers.

Kevin: The level of partnership and the customer intimacy is genuinely exciting.

Siva Sivaram: In terms of scaling the technology, I can see a lot of similarities between my prior experience in semiconductors and the progress that we need to make. I can see the past from where we are to where we need to go in defect density reduction, process variability control, equipment productivity, and ecosystem development. [inaudible] Seeing the current headwinds in the EV market... I can also see how the fundamental thesis of the company is getting validated.

Kevin: In terms of scaling the technology I can see a lot of similarities from a brand experience in semiconductors with a progress that we need to achieve.

Kevin: I can see the path.

Kevin: And where we are where we need to go on different density election process, where even if you control the grouping productivity ecosystem development et cetera.

Kevin: Finally.

In the current headwinds in the EV market again.

Kevin: I can also see how the fundamental thesis of the company is getting validated.

Siva Sivaram: Today's lithium-ion-based battery packs will not meet the customer needs for range, charging time, safety, or cycle life of the battery, even given the downward price pressure and marginal improvements being made by the industry. It's unclear that there is a path with the current technology to make the leap from early enthusiasts to more mainstream car buyers. QuantumScape represents the next generation of battery technologies that we think are necessary.

Kevin: Today's lithium ion based battery packs will not meet the customer needs.

Kevin: <unk> charging times safety cycle life of the battery.

Kevin: Even given the downward price pressure and margin improvements being made by the industry.

Kevin: It's unclear that there is a path with their current technology to make the lead from the early enthusiasts.

Kevin: More mainstream car buyers.

Kevin: Quantum's Gabe represents the next generation of battery technologies, the meeting unnecessary to make the east compelling choice for buyers.

John Joseph Saager: Thanks, Siva. On the last point, you mentioned the macro environment and sentiment around EBs.

Speaker Change: Thanks, Vivek on the last point, you mentioned, the macro environment and sentiment around <unk>.

Any of that impacted quantum states growth plans or customer conversations.

Siva Sivaram: Yeah, what we are seeing is that there is clearly some cyclicality in the model. There are macroeconomic reasons and some geographic variations in demand. In addition, there are some manufacturer-specific trends. However, over the long term, the secular demand from the marketplace for e-needs is undeniable.

Vivek: Yeah, what we are seeing is that there is clearly some cyclicality in the marketplace.

Vivek: There are macroeconomic reasons and.

Vivek: Some geographic variability in demand.

Vivek: In addition, there are some manufacturers specific trends as well.

Vivek: We went over the long term.

Vivek: Demand from the marketplace for the uses and enabled.

Siva Sivaram: I see the interest from our OEM customers and the excitement about the progress of our. Having said that, we see that automotive customers are still uncomfortable with the EV value proposition versus traditional combustion vehicles, especially in regard to the range and charging capability, given the current crop of. A holistic battery solution that is strong on safety, great for the long-term life of the battery, along with a better range and faster charging times. The variants in the marketplace of conventional lithium-ion batteries do not solve all these trends.

Vivek: I see the interest from our OEM customers and the excitement about the progress of our technology.

Speaker Change: Having said that we have.

Speaker Change: The Doctor module customers are still uncomfortable with the EV value proposition versus traditional combustion vehicles, especially in regards to the range and charging capability given the current crop of offerings.

Speaker Change: Holistic battery solution that is strong on safety.

Right on the long term life of the battery, along with a better range and faster charging times required.

Speaker Change: The variance in the marketplace of conventional lithium ion batteries cannot solve for all of these trends.

Siva Sivaram: Now do we think the rate of progress in this 30-year-old technology is capable of getting there? What we at Quantumscape have demonstrated so far is a step change from the current solution, a solid-state anode-free lithium metal battery that simultaneously offers high energy density and high power density, along with improved safety and cycle life. We believe our technology platform will enable EVs to be a compromise-free choice for the majority of the mobility marketplace.

Speaker Change: Not really think the rate of progress in this 30 year old technology capable of getting there.

Speaker Change: What we at corner Scape has demonstrated so far is a step change from their current solution.

Speaker Change: Solid state.

Speaker Change: <unk> III lithium method badly that simultaneously offers high energy density and high power density along with improved safety and cycling.

Speaker Change: We believe our technology platform will enable us to be a compromise free choice, but the majority of the mobility marketplace.

John Joseph Saager: Okay, great. Narrowing our focus to this quarter, can you explain how Alpha 2 fits into your big-picture development roadmap, and how this will move us towards our ultimate goal of getting into series production?

Speaker Change: Okay, great narrowing our focus to this quarter can you explain how <unk> fits into your big picture development roadmap and how does this move us towards our ultimate goal of getting into serious production.

Siva Sivaram: John, from a big picture perspective, the QSC-5, which is an approximately 5 amp cell, is a product we are striving to deliver to our automotive customers. The automotive industry uses a series of major stages to structure product development, typically called A-sample, B-sample, and C-sample, followed by Star Trek. We delivered A samples in 2022, and Alpha-1 and Alpha-2 are stepping stones to achieving B-sample production by the end of the year... Alpha 1 was completed last.

Speaker Change: From a big picture perspective, the <unk>, five which is an approximately probably ramp ourselves is a product we are striving to deliver good automotive customers.

Speaker Change: The automotive industry uses a series of major stages.

Speaker Change: Chip product development, typically called ASM to be sampling system.

Speaker Change: Followed based startup production.

Speaker Change: We delivered samples in 2022.

Speaker Change: And Alpha one and alpha two on stepping stones to achieving <unk> production by the end of this year.

Speaker Change: Alpha one was completed last year.

Siva Sivaram: Alpha 2, which we began shipping in the first quarter, has almost all the same characteristics as QSC 5, other than the raptor films and the final cell capacity. This gives our prospective launch customer the ability to evaluate and give rapid feedback on the performance capabilities of the cell so we can methodically iterate and improve.

Speaker Change: Alpha to which we began shipping in the first quarter is almost all the same characteristics of <unk> other than that after films in the final selling capacity.

Speaker Change: This gives our prospect to launch customer the ability to evaluate and give us feedback on the performance capabilities in Brazil. So we can methodically to date.

Sure.

John Joseph Saager: Kevin, turning to you now, how does our current capital runway align with our product development roadmap?

Right.

Speaker Change: Kevin turning to you know I'm, sorry, current capital runway align with our product development roadmap.

Kevin Hettrich: We ended Q1 with over $1 billion of liquidity on the balance sheet and reiterated our guidance of cash into the second half of 2026. Our balance sheet, we believe, is a competitive advantage and source of strength for the company. The capital in our forecast is being invested into things we believe create value. Finish the QSC-5 product, targeting approximately 800 watt hours per liter and 15 minute charge times from 10 to 80% capacity.

Speaker Change: We ended Q1 with over $1 billion of liquidity on the balance sheet and reiterated our guidance of cash into the second half of 2026 are.

Speaker Change: Our balance sheet, we believe is a competitive advantage and source of strength for the company.

Speaker Change: The capital in our forecast is being invested into things we believe create value.

Speaker Change: Finished the <unk> five product targeting approximately 800 watt hours per liter in 15 minute charge times from 10% to 80% capacity.

Kevin Hettrich: Developing and deploying our Raptor and Cobra FAST processes that make our proprietary solid-state electrolyte separator and install equipment to serve the small-volume, high-visibility program of our prospective launch customer, with whom we continue to closely work for the QSC-5 launch. We expect capital efficiency to improve with subsequent facilities due to the operational benefits of larger-scale equipment and process maturity, as well as due to business model and capital. Some of those options available to us are the use of traditional, non-dilutive sources of funding, including debt, customer prepayments, and government incentives.

Speaker Change: Develop and deploy our raptor and Cobra fast processes that make our proprietary solid state electrolyte separator.

Speaker Change: And install equipment to serve a small volume high visibility program of our prospective launch customer with whom we continue to closely work for the <unk> launch.

We expect the capital efficiency to improve with subsequent facilities due to the operational benefits of larger scale equipment and process maturity as well as due to the business model and capital structure.

Speaker Change: Some of those options available to us are.

Speaker Change: The use of traditional non dilutive sources of funding, including debt customer prepayments and government incentives.

Kevin Hettrich: In addition, we have the full opportunity set of business models available, including joint ventures and licensing. JBs benefit from the strength of the partner and reduced CapEx funded by QuantumScape, while licensing enables market penetration beyond the constraints of QuantumScape's balance sheet and operational bandwidth.

Speaker Change: In addition, we have the full opportunity set of business models available, including joint ventures and licensing.

Speaker Change: <unk> benefit from the strength of the partner and reduce Capex funded by quantum scape life.

Speaker Change: Licensing enables market penetration beyond the constraints of quantum skips balance sheet and operational bandwidth.

John Joseph Saager: Okay, thanks so much. We're now ready to begin the live portion of today's call. Operator, please open up the line for questions.

Speaker Change: Okay. Thanks, so much we're now ready to begin the <unk> portion of today's call. Operator, Please open up the line for questions.

Operator: We will now begin the question and answer session. In order to ask a question, press star, then the number 1 on your telephone keypad. Your first question comes from the line of Joseph Spak with UBS. Please go ahead.

Speaker Change: We will now begin the question and answer session.

Speaker Change: To ask a question press Star then the number one on your telephone keypad.

Speaker Change: Your first question comes from the line of Joseph Spak with UBS.

Please go ahead.

Gabriel J. Daoud: Hi, this is Gabriel on for Joe. Thank you for taking my question. Just wanted to quickly dive deeper on some of the details regarding the commercialization roadmap, uh, you know, you're ramping Raptor by the end of the year and getting Cobra up sometime in 2025 to get high-volume B-sample prototype production online, but once that's done, call it about half a year or so of delivering those B-sample prototypes and another half year to a year for some final C-sample stage, we're probably looking at full commercialization and gigawatt hour scale production sometime in that end of 26, early 27 period.

Speaker Change: Hi, This is Gabriel on for Joe. Thank you for taking my question just wanted to quickly dive deeper on some of the details regarding the commercialization roadmap.

Speaker Change: [noise] youre ramping wrapped or by the end of the year and getting Cobra up sometime in 2025 to get high volume B sample prototype production online, but once that's done call. It about half a year or so of delivering those b b sample prototypes and another half year to a year for some final see sample stage, we're probably looking at full commercial.

Speaker Change: <unk> and gigawatt hour scale production sometime in the end of 'twenty six early 2007 period does that sort of the right way to think about this.

Gabriel J. Daoud: Is that sort of the right way to think about this?

Siva Sivaram: Gabriel, thank you for the question and the overall picture. Look.

Speaker Change: Yes, Brian. Thank you for the question and the overall picture look.

Siva Sivaram: We are always focused on both short-term variables and longer-term things. We are giving the street guidance on what milestones we need to deliver in the short term, meaning in 2024 and 2025, and make sure we hit them every time. We are working very, very closely with our prospective launch customers, and we probably will allow them to come and tell us when we can talk about it. So for now, the guidance we can give you is for all of calendars 24 and 25. At the end of calendar year 24, we did low-volume B-samples, and next year, we're going to do high-volume QSC-5 B-samples. So that's the guidance we have given.

Speaker Change: We are.

Speaker Change: Always focused on both short term deliverables and longer term thinking.

We are giving the street guidance on what milestones we need to deliver in the short term, meaning in 2024 and 2025.

Speaker Change: Make sure we hit them every time.

Speaker Change: We are working very very closely with out of prospective launch customer and.

And we probably will allow them to come and tell us when we can talk about it outside.

Speaker Change: For now the guidance. We can give you is for all of calendar 2004 in calendar 'twenty five.

Speaker Change: At the end of calendar 'twenty, Florida than low volume.

Speaker Change: These samples and next year, we're going to high volume <unk> five.

Speaker Change: <unk> sampler prototypes. So that's the guidance we have given out site.

Gabriel J. Daoud: I understand. I appreciate the details there.

Understood I appreciate the details there.

Gabriel J. Daoud: And just as a quick follow-up, Kevin, my second question is related to the litigation expense you disclosed in your adjusted EBITDA bridge. Um, just generally, how are you viewing this on a go-forward basis? I mean, was this just a one-time line item? You know, how should we be looking at this?

Speaker Change: And just as a quick follow up Kevin My second question is related to the litigation expense you disclosed in your adjusted EBITDA Bridge.

Speaker Change: Just generally how are you viewing this on a go forward basis. I mean was this just a one time line item how should we be looking at this.

Speaker Change: Yes.

Kevin Hettrich: Yeah, that's a great question. The net loss to adjusted E-visit table found in the..., at the end of the shareholder letter includes an approximately $24.5 million expense for the net litigation settlement accrual and legal fees. This is associated with the agreement and principle to settle the securities class action litigation. The pending settlement, once finalized and if approved, would conclude what has been one of our most significant ongoing legal matters, as we've described in past annual and quarterly reports. The settlement is subject to final documentation, notice to class members, and preliminary and final approval by the court.

Speaker Change: For the question.

Speaker Change: The net loss to adjusted EBITDA table in the bottom.

Kevin: At the end of the shareholder letter includes an approximately $24 $5 million expense for the net litigation settlement accrual and legal fees.

Associated with the agreement in principle to settle the Securities class action litigation.

Kevin: Pending settlement once finalized and if approved will conclude what has been one of our most significant ongoing legal matters.

Kevin: <unk> and past annual and quarterly reports.

Kevin: Settlement is subject to final documentation noticed the class members and preliminary.

Kevin: Preliminary and final approval of the court.

Gabriel J. Daoud: I appreciate the color. I'll pass it on.

Speaker Change: Appreciate the color I'll pass it on.

Jordan Alexander Levy: Your next question comes from the line of Jordan Levy with Truist Securities.

Speaker Change: Your next question comes from the line of Jordan Levy with <unk> Securities.

Jordan Alexander Levy: Please go ahead.

Jordan Alexander Levy: Afternoon all, and thanks for all the details. Siva, maybe it would be good for you to start.

Jordan Alexander Levy: Good afternoon, all and thanks for all the details similar maybe for you to start.

Siva Sivaram: The shareholder letter mentions some streamlining of downstream cell assembly processes that include things like simplifying the build materials and consolidating the process steps and increasing automation. And I think this is in reference to Raptor. I'm just curious, are these all sorts of changes that were already contemplated in the Raptor designs, or are these new developments you've been able to kind of point out as a means of process simplification and maybe any details around that line in the shareholder letter?

Jordan Alexander Levy: The shareholder letter mentions.

Jordan Alexander Levy: Some streamlining of downstream.

Jordan Alexander Levy: <unk> cell assembly processes.

That includes things like simplifying the bill of materials and consolidated in the process and the increasing automation.

This is in reference to Raptor I'm. Just curious are these all sort of changes that were already contemplated is a raptor designs or are these new developments, you've been able to kind of pointed out as a means of process simplification would maybe any details around that line in the shareholder letter.

Siva Sivaram: Jordan, I am willing to take credit for everything. Now, having said that, many of these were well-planned, and these were as Raptor. The upstream and downstream automation steps have been implemented, and they're going through site acceptance tests in some cases, and cell assembly steps that are coming right behind. In all of those, we are being very methodical. We go back and make sure we run enough of them so that we can get a decent amount of data, to establish a baseline, make sure that we ensure that the process is robust, there is sufficient margin, and then try to automate them right after.

Jordan Alexander Levy: Jordan I'm willing to take credit for everything.

Now having said that many of this we're well planned.

Jordan Alexander Levy: And that these were asked but after the upstream and downstream automation steps have been implemented and data going through site acceptance test in some cases.

Speaker Change: And that cell assembly steps that are coming right behind in all of those we are being very methodical.

Speaker Change: If you go back and make sure we run Nf Optum. So then we can get a decent amount of data.

Speaker Change: To establish a baseline make sure that we ensured that the process is robust that has.

Speaker Change: Sufficient margin and then try to automate them afterwards, and this process continuously today, it's the most forward.

Siva Sivaram: And this process continuously iterates and moves forward. Alpha 2, for example, is one such major step where we can get the sample, give it to customers, and get their feedback. And then when we get towards the B samples at the end of this year, we'll have had one more revision. So we have done a good job of continuously streamlining steps of the process that we know are robust, automating them, and then moving to the next step. That's what you're doing...

Speaker Change: Also to book for example is one such major step where we can get the samples give me the customers get their feedback and then when we get to eggs.

Speaker Change: The beef samples at the end of this year, we would have had one more division of these so we have done a good job of continuously streamlining steps of the process, where we know our robust automating them and then move to the next step that's what USC.

Jordan Alexander Levy: That makes total sense; I appreciate that. And then Kevin, maybe just for you, and this may be related to that litigation expense you all disclosed, but just seeing where OPEX came in for the quarter, I'm assuming that might've been in there, so that might've been accounted for the step up, but maybe just thinking more broadly as you all get kind of Raptor and Cobra going. I know you reiterated your EBITDA guidance; I'm just curious how we should think about the shaping of OPEX.

Speaker Change: That makes total sense I appreciate it a pad and then Kevin maybe just for you.

Kevin: And then just maybe related to that litigation expense you all disclose but just see where opex came in for the quarter I'm, assuming that might've been in there so that might have been accounted for the step up but maybe just thinking more broadly as you all get kind of raptor.

Kevin: Cobra going I know you reiterated your EBITDA guidance I'm just curious how we should think about the shaping of Opex does that change at all as some of these processes start to come online.

Kevin Hettrich: Yeah, we did reiterate the adjusted EBITDA guidance of 250 to 300 million losses for the year. You can think of it as broadly, slightly monotonically increasing over the year as we ramp up volumes of the QSC-5 process.

Kevin: Yeah, We did we did reiterate the adjusted EBITDA guidance of $2 50 to 300 million.

Kevin: <unk> loss in the year, you could think of it as broadly slightly monotonically, increasing over the year as we ramp up volumes of the.

Kevin: <unk> prototypes.

Jordan Alexander Levy: Got it. Thank you for the details.

Speaker Change: Got it thank you for the details.

Yeah.

Jed Dorsheimer: Your next question comes from the line of Jed Dorsheimer with William Blair. Please go ahead.

Speaker Change: Your next question comes from the line of Jed <unk> with William Blair.

Jed: Please go ahead.

Mark Haywood Shooter: You have Mark Shooter on for Jed. Congratulations on your first quarter as CEO.

Jed: Yes, Mark shooter for Jed.

Jed: Congrats on the first quarter as CEO.

Mark Haywood Shooter: Just a question about fast charging. I know that's key for EVs, and the data is pretty impressive from 10 to 80%. I know lithium metal theoretically has better charge transfer kinetics than graphite, but in practice, it's hard to control that surface lithium to avoid, you know, your current density hotspots. So I'm wondering, how is cycle life impacted under the fast charge testing protocol you guys are seeing?

Jed: Just a question about the fast charging I know thats key for Evs.

Jed: The data is pretty impressive from 10% to 80%.

Jed: Looking at metal theoretically at better charge transfer kinetics in graphite.

Jed: Practice, it's hard to control that surface lithium to avoid your car density hotspots.

Jed: I'm wondering how is cycle life impacted under the fast charge testing protocol you guys are seeing.

Siva Sivaram: Mark, thank you. A very perceptive question.

Speaker Change: Alright, Thank you very perceptive question.

Siva Sivaram: This is something that we have repeatedly shown. We have data that we have demonstrated both in our sister cells and earlier on with our customer talking about it with their data, that substantive number of cycles with charging that is much more than the normal CO3 that a car would normally experience day-to-day. So we have shown substantive fast charge data and cycling together. The truth of the matter is, this has been one of our core innovations, making sure that that ceramic separator along with lithium metal plating on the other side in an anode-free configuration and doing it repeatedly over and over again at a reasonably fast charging cycle has been our strength.

Speaker Change: This is something that we have repeatedly shown.

Speaker Change: We have.

Speaker Change: Data that we have demonstrated both in our system sales and.

Speaker Change: Earlier on with the customer.

Speaker Change: Talking about it with their data that's substantive number of cycles.

Speaker Change: Charging that is much more than that in our models and see that.

Todd would normally experience day to day, so we have shown substantive fast data and cycling together.

Speaker Change: The truth of the matter is this has been one of our core innovation, making sure that that ceramic separator.

Speaker Change: Along with lithium metal plating on the other side and in analytics reconfiguration and doing it repeatedly over and over again at a reasonably fast charging safety has been our strength.

Speaker Change: This is one of the major differentiators of the technology as you can see in all of the data that we presented from alpha in the shareholder letter.

Siva Sivaram: This is one of the major differentiators of the technology, as you can see in all of the data that we have presented from Alpha 2 in the shareholder lecture. So we have demonstrated that for you with prior data, and we continue to validate.

So we have demonstrated that for you.

Speaker Change: Prior to data and we continue to validate it.

Mark Haywood Shooter: Awesome. That's a significant achievement. Thanks for the color.

Speaker Change: Awesome, that's a significant achievement thanks for the color.

Mark Haywood Shooter: My next question goes towards Raptor, and I'm wondering if we could dig in a bit on the improvements. Do you see it as more so a cost and speed improvement for Raptor and Cobra, or are there other benefits, like potentially interstellar? Yeah, so... Raptor and Cobra

Speaker Change: My next question goes towards Raptor.

Speaker Change: Wondering if you could dig down there to you in a bit.

Raptor: On the improvements do you see it as more so a cost and speed improvement for Raptor and Cobra or are there.

There are benefits.

Raptor: Like a potentially thinner separator.

Raptor: Yes so.

Raptor: Raptor and Cobra clearly.

Siva Sivaram: Raptor and Cobra are clearly an order of magnitude for Raptor and another order of magnitude for Cobra; we showed the data in the last earnings letter on the productivity advantage of the two. Raptor is better; Cobra is much better, in terms of throughput and in terms of equipment footprint per unit output. That is very, very good. However, what we continue to see is, in the case of the Raptors, some through critical to quality metrics that are also better. We do expect that both Cobra and Raptor will continue to help us achieve the targeted energy density and power density that we want.

In order of magnitude for Raptor another order of magnitude we showed the data in the last earnings letter on the productivity advantage of the two.

Raptor: That is better corporate is much better.

Raptor: In terms of throughput.

Raptor: Throughput and in terms of equipment footprint, but unit output.

Raptor: That is very very good.

Raptor: What we continue to see is in the case of Raptor some.

Raptor: True.

Raptor: Critical to quality metrics that are also.

Raptor: Better on Cobra.

Raptor: We do expect that both Cobra and <unk>.

Raptor: We will continue to help us.

Raptor: <unk> targeted energy density and power density that we've talked about.

Operator: Great. Thank you very much. As a reminder, if you would like to ask a question...

Great. Thank you very much.

Speaker Change: As a reminder, if you'd like to ask a question.

Davis Sunderland: Press star followed by the one on your telephone keypad. We will pause for just a moment to compile the Q&A roster. Your next question comes from the line of Davis Sunderland.

Speaker Change: Press Star followed by the one on your telephone keypad.

Speaker Change: Yeah.

Speaker Change: We will pause for just a moment to compile the Q&A roster.

Speaker Change: Your next question comes from the line of Davis Sunderland.

Davis Sunderland: Hey guys, good afternoon. Thank you for taking my question. I know it's only been a month since you made the announcement, but just wondered if there's been any feedback so far from the prospective launch customer, or maybe, if not, any timeline on how or when this might be communicated? [inaudible]

Davis Sunderland: Please go ahead.

Davis Sunderland: Hey, guys. Good afternoon, Thanks for taking my question.

Davis Sunderland: I know, it's only been a month since you made the announcement, but just wondered if there's any feedback so far from the prospective launch customer or maybe if not.

Davis Sunderland: Any timeline on how or when this market be communicated.

Siva Sivaram: Yeah. So, we have shipped the films to our prospective launch customer, as we mentioned in our press release. These bad data will continue to be customer confidential, including the entire test product. This is the reason we test in parallel in our own labs with sister cells, and we publish that data. We have shown early results already in our earnings shareholder letter, where we show the performance of these same Alpha 2 samples, which are the analogous corresponding sister cells that were shipped to the company.

Speaker Change: Yes so.

Davis Sunderland: We have shipped.

Davis Sunderland: The films to Prosper two launch customers as we mentioned in the.

Davis Sunderland: A press release.

Davis Sunderland: Those that data will continue to be similar.

Davis Sunderland: Similar to confidential, including the entire desktop vertical.

Davis Sunderland: This is the reason we tested in parallel in our own labs with system sales and we published that data.

Davis Sunderland: We have shown the early retail sell let me in.

Davis Sunderland: Our earnings our shareholder letter, where we do show the performance of these same alpha two samples, which are that the analogous corresponding SR sales that were shipped to the customer.

Davis Sunderland: Got it. That's very helpful. Thank you. And maybe just one more, if I could add a follow up. Have you guys seen any changes in the level of engagement with potential customers, just as the excitement around EVs seems to have turned negative in the last couple of months, or lots of negative headlines, of course, but just how you guys are thinking about new partnerships, if there's been any change on that, on that front. Thank you. Yeah.

Speaker Change: Got it Thats very helpful. Thank you and maybe just one more if I could add a follow up have you guys seen any changes in the level of engagement with potential customers just as the excitement around <unk> seems to have turned negative in the last couple of months or bought some negative headlines of course, but just how you guys are thinking about new partnerships that theres been any change.

Speaker Change: On that on that front. Thank you.

Siva Sivaram: I did talk about it in the earlier question that John was asking, the interest from the customers that we have been working with, they are the ones that we truly engage closely with, has been very, very good.

Speaker Change: I did talk about it in the in the earlier question then John was asking me.

Speaker Change: On the scripted questions.

Speaker Change: In the interest from the customers that we have been working with.

Speaker Change: They are the ones that we truly engaged closely with has been <unk>.

Davis Sunderland: There has been no let-down in the level of interest or the level of commitment from our customers. We are continuing to work closely with our partners that we've been working with, and the overall secular demand... Thesis has not changed. Clearly, there are some short-term issues. Clearly, there are headwinds in the marketplace today. Clearly, as I was saying earlier, there is some cyclicality, there are some macroeconomic conditions, there are some geographic changes, there are some manufacturer-specific differences. But among our customers, the customers that we are working with, the interest in our technology, the commitment to our company, and the enthusiasm with which we are working with has remained unchanged.

Speaker Change: Very very good there has been no letup in the level of interest and the level of commitment from our customers.

Speaker Change: We are continuing to work closely with our partners that we've been working with.

Speaker Change: And the overall secular demand thesis.

Speaker Change: Pieces has not changed.

Speaker Change: Clearly there is some short term issues clearly there are headwinds in the marketplace today clearly as I was saying earlier there is some cyclicality that the macroeconomic conditions. There are some geographic changes there is some.

Speaker Change: Specific differences.

Speaker Change: But among our customers the customers that we are working with the interest on our technology the commitment to our company.

Speaker Change: And the enthusiasm with which they are working with has remained unchanged.

Davis Sunderland: That's helpful. Thank you. I appreciate the time.

Speaker Change: That's helpful. Thank you I appreciate the time.

Operator: As a reminder, if you would like to ask a question, press star followed by the number on your telephone keypad. At this time, there are no further questions. I will now turn the call back over to Quantumscape Management for closing remarks. Please go ahead.

Speaker Change: As a reminder, if you'd like to ask a question press star followed by the one on your telephone keypad.

Speaker Change: At this time there are no further questions.

Speaker Change: I will now turn the call back over to Quantum's Cape Management for closing remarks. Please go ahead.

John Joseph Saager: Thank you. With that, I'd like to thank you all for joining us today. We look forward to sharing more on our progress in the coming months.

Speaker Change: Thank you with that I'd like to thank you all for joining us today.

Speaker Change: I look forward to sharing more on our progress in the coming months.

Cape Management: Thank you.

Yeah.

Cape Management: Okay.

Cape Management: Okay.

Cape Management: Yeah.

Cape Management: Yes.

Cape Management: Okay.

Cape Management: Okay.

Cape Management: Yeah.

Cape Management: Yeah.