Q2 2024 QuantumScape Corp Earnings Call
Operator: Good morning, my name is Mark, and I will be your conference operator today. At this time, I would like to welcome everyone to Quantumscape Corp.'s second quarter 2024 earnings call. All lines have been placed on mute to prevent any background noise.
Operator: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star followed by a number 1 on your telephone keypad. Again, it's T.A.R.F.
Mark: Good morning, my name is Mark, and I will be your conference operator today. At this time, I would like to welcome everyone to the Quantumscape Corp. 2nd Quarter 2024 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session.
If you would like to ask a question during this time, please press star followed by a number one on your telephone keypad.
John Joseph Saager: Again, it's star followed by the number one on your telephone keypad. I will now turn the call over to John Saeger, Quantumscape's Vice President of Capital Markets and FP&A. John , you may begin your conference.
Operator: followed by the number one on your telephone keypad. I will now turn the call over to John Sager, Quantumscape's Vice President of Capital Markets and FD&A. John, you may begin your conference.
John Sager: Thank you, Operator. Good afternoon, and thank you to everyone for joining Quantumscape's second quarter, 2024-2012. 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 Division for a forward-looking statement that is posted on our website as part of our quarterly update. Forward-looking 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 Quantumscape's 2nd quarter, 2024-2012.
Speaker Change: To supplement today's discussion, please go to our IR website at ir.quantumscape.com to view our shareholder letters.
John Sager: Our expectations and beliefs regarding these matters may not materialize. However, actual results in financial theories 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 from the content of our forward-looking statement to the reasons that we cite in our shareholder letter, Form 10-K, and other SEC filings, including uncertainty posed by the dystopian prediction's 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 you.
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.
Speaker Change: Our expectations and beliefs regarding these matters may not materialize.
Speaker Change: Actual results in financial theories 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 of this material from the content of our forward-looking statement to the reasons that we cite in our shareholder letter, Form 10-K , and other SEC filings, including uncertainty posed by the difficulty in predicting future outcomes.
Speaker Change: 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.
John Sager: I'm excited to provide an update on our activity since our last update. First, we recently announced a landmark agreement with Polarco, the battery company of the Volkswagen Group. This deal reflects the value created by consistent execution on our development roadmap and customer validation of our technology. We forecast that this Capital Light Licensing Agency lengthens our tax framework into 2028, an extension of 18 months relative to our previous guidelines, upon satisfactory safety requirements.
Siva: Thanks, John .
Siva Sivaram: I'm excited to provide an update on our activities since our last earnings call.
Siva Sivaram: First, we recently announced a landmark agreement with Polarco, the battery company of the Volkswagen Group.
Siva Sivaram: This deal reflects the value created by consistent execution on our development roadmap and customer validation of our technology.
Siva Sivaram: We forecast that this capital light licensing arrangement lengthens our cash runway into 2028.
Siva Sivaram: an extension of 18 months relative to our previous guidance.
John Sager: The deal allows for a $130 million prepayment of royalties to Quantumscape in exchange for a non-exclusive license, covering an initial production volume of 40 gigawatt hours per year with an option to expand to 80 gigawatts, and it's got approximately 1 million users. The license covers the technology platform used in our upcoming CSC5. This agreement is a major step in our global strategy to bring our solid state lithium metal battery technology to the market for electric vehicles.
Siva Sivaram: Upon satisfactory technical progress.
Siva Sivaram: The deal allows for a $130 million prepayment of royalties to Quantumscape in exchange for a non-exclusive license.
Siva Sivaram: covering an initial production volume of 40 gigawatt hours per year with an option to expand to 80 gigawatt hours.
Siva Sivaram: in it for approximately 1 million meters per year
Siva Sivaram: The license covers the technology platform used in our upcoming CSP-5 product.
Siva Sivaram: This agreement is a major step in our global scale strategy to bring our solid-state lithium-ion battery technology to market for electric vehicles.
John Sager: By joining forces, we can combine our cutting-edge technology with powercourse's capabilities in industrialization and manufacturing. Under this licensing model, we can leverage our partner's investment of billions of dollars to industrialize our technology while maintaining our focus on innovation and development. We believe that this capital-light model will enable us to reach gigawatt hourscale faster and, when combined with financial prudence, will allow us to extend the cash runway into 2020. We see this collaboration and this Intellectual Property Framework as potential templates for future deals with other companies.
Speaker Change: By joining forces, we can combine our cutting-edge technology with power-course capabilities in industrialization and manufacturing.
Speaker Change: Under this licensing model, we can leverage our partnership investment of billions of dollars to industrialize our technology while maintaining our focus on innovation and development.
Speaker Change: We believe that this capital light model will enable us to reach gigawatt-hour scales faster, and when combined with financial prudence, will allow us to extend the cash fundraise into 2020.
Speaker Change: We see this collaboration and this Intellectual Property Framework as potential templates for future deals with other customers.
John Sager: In addition to the deal with powerful... Our customer engagement continues to be robust. We have shipped Alpha 2 prototype cells to multiple customers in the automotive and consumer electronics sectors. We also continue to work closely with our prospective launch customers for the QSP-5. The core innovation that will allow our solid-state lithium metal battery technology to be manufactured at the gigawatt-hour scale is our past separated production process, which we are rolling out in two stages.
Speaker Change: In addition to the deal with PowerSource,
Speaker Change: Our customer engagement continues to grow.
Speaker Change: We have shipped Alpha 2 prototype cells to multiple customers in the automotive and consumer electronics sectors.
Speaker Change: We also continue to work closely with our prospective launch customers for the QSP-5 set.
Speaker Change: The core innovation that will allow our solid-state lithium metal battery technology to be manufactured at gigawatt-hour scale is our fast separator production process, which we are rolling out in two stages, Raptor and Cobra.
John Sager: Raptor and Cobra. We're on track to complete our ramp of the Raptor process, one of our four key goals for the year that, after classes, has also been an important testbed for key elements of COBRA, and our progress on RAPTURES has allowed us to begin shifting increased resources towards co-graduation. We are starting to take delivery of COBRA equipment in line with our annual goal. Next, we will publish an update on safety testing of our Prophetide battery.
Speaker Change: We're on track to complete our ramp of the Raptor process, one of our four key goals for the year.
Speaker Change: The Raptor Project has also been an important testbed for key elements of COBRA.
Speaker Change: And our progress on RAPTOR has allowed us to begin shifting increased resources towards co-grad development.
Speaker Change: We are starting to take delivery of COBRA equipment in line with our annual goal.
Speaker Change: Next, we published an update on safety testing of our prophesied battery cells.
John Sager: One noteworthy research result from Profit Excel testing was demonstrating thermal stability up to 300 degrees centigrade. For reference, we tested conventional high energy lithium ion salt, which bursts into flames between 174 and 185 degrees in our discussions with our customers. Safety is a different thing. Cells that can offer a fundamentally safer chemistry not only add value to existing applications like automotive and consumer electronics but also potentially open up new markets that current technologies are unable to serve in. Next, I will hand things over to Kevin for a word on our financial outlook.
Speaker Change: One noteworthy research from Prof. Seltzer's team was demonstrating thermal stability up to 300°C.
Speaker Change: For reference, we tested conventional high energy lithium ion pulse, which burst into flames between 174 and 185 degrees C.
Speaker Change: in our discussions with our customers.
Speaker Change: Safety is a difference maker.
Speaker Change: The cells that can offer a fundamentally safer chemistry not only add value to existing applications like automotive and consumer electronics.
Speaker Change: but also potentially opens up new markets that current technologies unable to serve effectively.
Speaker Change: Next, let me hand things over to Kevin for a word on our financial outlook.
Kevin Hettrich: Capital expenditures in the second quarter were $18.9 million. QCCAPEX primarily supported equipment purchases in preparation for low-volume QSC-5 prototype production, as well as the COBRA process and other equipment as we prepare for higher volume CSB-5 prototype production in 2025.
Kevin Hettrich: Thank you, Siva. Capital expenditure for the second quarter was $18.9 million.
Kevin Hettrich: CC-CAPEX primarily supported equipment purchases in preparation for low-volume 2SV-5 prototype production.
Kevin Hettrich: As well as the COBRA process and other equipment as we prepare for higher volume CSP5 prototype production in 2025.
Kevin Hettrich: We expect to be on the lower end of our full year 2024 guidance for capital expenditures of between $70 million and $120 million. GAAP operating expenses and GAAP net loss were $134.5 million and $123 million, respectively. Adjusted EBITDA loss was $72.5 million in Q2. We maintain our four-year 2024 guidance for adjusted EBITDA loss to be between $250 million and $300 million. We ended the quarter with $938 million in liquidity. As we mentioned previously, our long-term capital requirements are a function of our commercialization pathway.
Kevin Hettrich: We expect to be on the lower end of our full year 2024 guidance for capital expenditures of between $70 million and $120 million.
Kevin Hettrich: GAAP operating expenses and GAAP net loss were $134.5 million and $123 million respectively.
Kevin Hettrich: Adjusted EBITDA loss was $72.5 million in Q2.
Kevin Hettrich: We maintain our full year 2024 guidance for adjusted EBITDA loss to be between $250 million and $300 million.
Kevin Hettrich: We ended the quarter with $938 million in liquidity.
Kevin Hettrich: As we mentioned previously, our long-term capital requirements are a function of our commercialization pathway.
Kevin Hettrich: We believe the licensing deal with PowerCo offered a capital efficient path to market, and we now project a cash runaway to extend into 2028, an 18-month extension relative to previous guidance. Any additional funds raised, including under our ACM prospective supplements, would further extend this cash loan. With that, I'll let Siva speak to you before we close the meeting.
Kevin Hettrich: We believe the licensing deal with Powerco offered a capital-efficient path to market, and we now project a cash runaway to extend into 2028, an 18-month extension relative to previous guidance.
Kevin Hettrich: Any additional funds raised, including under our ACM prospective supplements, would further extend this cash runaway.
Kevin Hettrich: With that, I'll let Siva speak to you before we close the remarks.
Siva Sivaram: Kevin, I'd like to look at how the power coldly affects the TG drought. The secular trend toward EV adoption continues. But despite decades of development, existing conventional battery technology still cannot address the requirements of large segments of the automotive market.
Siva Sivaram: Thanks Kevin. I'd like to look at how the power coldly affects the strategic outlook.
Siva Sivaram: The secular trend towards EV adoption continues.
Siva Sivaram: But despite decades of development, existing conventional battery technology still cannot address the requirements of large segments of the automotive market.
Speaker Change: There's a clear need for a next-generation vaccine to drive broad adoption of immunity.
Siva Sivaram: And this means that this is an extraordinary market opportunity, potentially hundreds of billions of dollars. We believe that our solid-state lithium-ion battery platform is a clear leader in the next-generation battery range. And to seize these massive market opportunities, a global manufacturing ecosystem must be built.
Speaker Change: And this means that this is an extraordinary market opportunity, potentially hundreds of billions of dollars annually.
Speaker Change: We believe that our solid-state lithium metal platform is a clear leader in the next generation battery ways.
Speaker Change: And to seize these massive market opportunities, a global manufacturing ecosystem must be developed.
Siva Sivaram: This is where our collaboration with PowerQuest comes in. They can bring their industrial experience and operational excellence to bear on the formidable practical challenges of producing our next generation battery platform at the gigawatt hour. This non-exclusive deal also allows us to pursue additional opportunities while maintaining our tenacious focus on innovation and Return on Invested Capital.
Speaker Change: This is where our collaboration with PowerQuest takes place.
Speaker Change: They can bring their industrial experience and operational excellence to bear on the formidable practical challenges of producing our next-generation battery platform at the gigawatt-hour scale.
Speaker Change: This non-exclusive deal also allows us to pursue additional opportunities while maintaining our tenacious focus.
Speaker Change: on Innovation and Return on Invested Capital.
Siva Sivaram: Through this collaboration with PowerCore, we have an opportunity to quickly and efficiently get our battery technology into series production electrically. The inherent leverage of this industrialization model takes advantage of the investment being made by automotive OEMs such as the Volkswagen Group. And our highly differentiated technology allows both partners to benefit from the collaboration. Moreover, under this model, our market share is not directly constrained by the size of our balance sheet or the bandwidth of our operations.
Speaker Change: Above all, we see this collaboration with Powerco as an opportunity to quickly and efficiently get our battery technology into series production electrically.
Speaker Change: The inherent leverage of this industrialization model takes advantage of the investments being made by automotive OEMs such as the Volkswagen Group, and our highly differentiated technology allows both partners to benefit from this collaboration.
Speaker Change: Moreover, under this model, our market share is not directly constrained by the size of our balance sheet or the bandwidth of our operations.
Siva Sivaram: Significant work remains to achieve our ambition. We are excited to begin our collaboration with Powerpoint. It is the first step in the next phase of our journey to revolutionize history and create exceptional value for our children. We look forward to reporting on our progress during the month.
Speaker Change: Those significant work remains to achieve our ambitions.
Powerpoint: We are excited to begin our collaboration with Powerpoint.
Powerpoint: It is the first step in the next phase of our journey to revolutionize energy storage and create exceptional value for our shareholders.
Powerpoint: We look forward to reporting on our progress in the months to come.
John Sager: Siva, we'll begin today's Q&A portion with a few questions we've received from investors or that I believe investors would be interested in. For example, Siva, why is the power of POTUS so significant for Quantumscape?
Powerpoint: Thanks, Siva. We'll begin today's Q&A portion with a few questions we've received from investors or that I believe investors would be interested in.
Siva Sivaram: Siva, why is the Power of Code DA so significant for Quantumscape?
Siva Sivaram: John, in my mind, there are four powerful reasons why this game is so important. First, it demonstrates the value we have created for our customers and shareholders with our solid-state lithium metal platform. Thank you.
Siva Sivaram: John , in my mind, there are four powerful reasons why this deal is so important.
John: First, this demonstrates the value we have created for our customers and shareholders with our solid-state lithium metal platform.
Kevin Hettrich: By combining our unique technology with the global capabilities of the Volkswagen Group, we can get our technology to gigawatt scales and into series production vehicles as rapidly as... First, this deal is non-explicit, and it provides a template for future deals with other companies and Matthew. This capital life arrangement presents the most efficient allocation of our time.
John: Second, by combining our unique technologies with the global capabilities of the Volkswagen Group.
John: We can get our technology to gigawatt house scales and into series production vehicles as rapidly as possible.
Speaker Change: First, this deal is non-explicit.
Speaker Change: and it provides a template for future deals with other customers.
Matthew: and Matthew.
Matthew: The capital life arrangement presents the most efficient allocation of our resources.
Kevin Hettrich: Kevin, turning to you now. Kevin mentioned the capital light approach. How is this agreement better for investors than the joint venture that it was? We feel it allows both PowerCode and Quantumscape to focus on our respective strengths. Benefits of the licensing model for us include increased operating leverage, a reduction in unforecast capital requirements, and an ability to utilize our partner's balance. Additionally, an exciting benefit is that the potential scale of this deal is roughly four times the size of the prior JV. A legacy model that creates value for both parties has to start with differentiated technology. Our QFD5 technology has targeted benefits for safety, energy density, and power, and we believe it achieves that strong performance differentiation.
Matthew: Thanks for that. Kevin, turn to you now. Sivan mentioned the capital light approach. How is this agreement better for investors than the joint venture that I proposed?
UCL: This field allows both PowerCode and Quantumscape to focus on our respective strengths.
Speaker Change: Benefits of the licensing model for us include increased operating leverage, a reduction in our forecast capital requirements, and an ability to utilize our partner's balance sheet.
Speaker Change: Additionally, an exciting benefit is that the potential scale of this deal is roughly four times the size of the prior JVs.
Speaker Change: A legacy model that creates value for both parties has to start with differentiated technology. Our QFD5 technology with targeted benefits to safety, energy density, and power, we believe achieves that strong performance differentiation and creates an opportunity for both Quantumscape and PowerCode to earn excellent financial returns.
Kevin Hettrich: It creates an opportunity for both QuantumScape and PowerCode to make an excellent financial return. In the near term, one of the benefits we discussed in the letter is that it helps extend our cash runway by 18 months relative to progress. On that last point, can you talk a little bit more detail about how this deal enables a cash outlet? Our forecast 18-month runway extension, now into 2028, is driven by the following.
Speaker Change: In the near term, one of the benefits we discussed in the letter is that it helps extend our cash runway by 18 months relative to prior debt.
Speaker Change: On that last point, can you talk in a little bit more detail about how this deal enables a cash download extension?
Speaker Change: Our forecast 18-month runway extension, now into 2028, is driven by the fall.
Kevin Hettrich: First, under the licensing agreement, PowerCo will adjust the CapEx required for gigawatt-hour scale production. The deal sees us get $134 million previously earmarked for our investment into JV. Second, PowerCode will contribute resources and skilled personnel as part of the collaboration, which helps reduce our expected costs to industrialize our technology platform. Third, the licensing agreement features an inflow of Quantumscape cash, specifically a $130 million royalty prepay, contingent upon satisfactory technical projects. Separate from the power code deal, we are continuing to make improvements to the efficiency of our operations.
Speaker Change: First, under the licensing agreement, PowerCo will invest CapEx required for gigawatt-hour scale production facilities.
Speaker Change: The deal sees us $134 billion previously earmarked for our investment in CJBs.
Speaker Change: Second, PowerCo will contribute resources and skilled personnel as part of the collaboration, which helps reduce our expected costs to industrialize our technology platform.
Speaker Change: Third, the licensing agreements featured an inflow of Quantumscape, specifically a $130 million royalty prepay contingent upon satisfactory technical progress.
Speaker Change: And separate from the power code deal, we are continuing to make improvements to the efficiency of our operations. These improvements are now incorporated into the forecast.
Kevin Hettrich: These improvements are now incorporated into the board. Okay, thanks, Kevin. Siva, turning back to you and summarizing a couple of questions from investors. Can you tell investors anything more about the joint collaboration team and the milestones that are part of this agreement?
Speaker Change: Okay, thanks, Kevin. Siva, turning back to you and summarizing a couple of incoming questions we received.
Siva Sivaram: Can you tell investors anything more about the joint collaboration teams and the milestones that are part of this agreement?
Siva Sivaram: John, now that we have signed this agreement, work will begin immediately. We are planning to ramp up the joint scale of teams to around 150. The initial team will begin the collaboration activities here in San Jose, and the Technology Transfer Committee. We expect it to move to a power core facility, with more of the resources coming from them as opposed to manufacturing them. The project plan will address all the verticals of manufacturing, Process, Equipment, Infrastructure, and Continuity, in just one milestone. These are related to the QSP5B sample and finalizing the target design for the project. We will then grant the license, and they will receive their IETP.
Siva Sivaram: John , now that we have signed this agreement, work begins immediately.
Speaker Change: We are planning to ramp the joint scale of teams to around 150 experts.
John: The initial team will begin the collaboration activities here in San Jose.
John: As the technology transfer proceeds, we expect it to move to a power core facility with more of the resources coming from them as manufacturing ramps up.
John: The project plan will address all the verticals of manufacturing.
John: Process, Equipment, Infrastructure, and Continuous Improvement.
John: In terms of milestones,
Speaker Change: These are related to QSC-5 d-samples.
Speaker Change: to the Cumbra process.
Speaker Change: and finalizing the target design for the test.
Speaker Change: We will then grant the license.
Speaker Change: and received their RISC-3 certificates.
Siva Sivaram: And my final question on collaboration in licensing: what does it mean from an intellectual property perspective?
Speaker Change: Okay, great. And my final question on the collaboration of my two students is, what does it mean from an intellectual property perspective?
Siva Sivaram: Now, we believe we've built a strong IP portfolio for the next generation battery. We've always been incredibly careful about protecting our IPs, and we'll continue to push the envelope on innovation to create more value for shareholders and buyers. We have, and we will continue to protect all IP relating to the separator in its manufacturing, including the Kodra box. Quantumscape and PowerCore will jointly own new IP we create relating to automotive battery cells and their industrialization. QS will remain an innovation-focused company, and we will continue to develop new intellectual processes and technical knowledge. For more information on intellectual property licensing, please refer to our AC. Okay, thanks.
Speaker Change: Now we believe we've built a strong IP portfolio in the next generation battery industry.
Speaker Change: We've always been incredibly careful about protecting our IPs and we'll continue to push the envelope on innovation to create more value for shareholders and customers.
Speaker Change: We have and we will continue to protect all IPs.
Speaker Change: relating to the separator in its manufacturing, including the COBRA process.
Speaker Change: Quadramscape and PowerCore will jointly own new IP we create relating to automotive battery cells and their industrialization.
Speaker Change: QS will remain an innovation focused company and we will continue to develop new intellectual properties and technical know-how.
Speaker Change: For more information on the IP licensing, please do refer to our SCC file.
Operator: Okay, thanks so much Kevin and Siva. We're now ready to begin the live portion of today's call. Operator, please open up the lines if you'd like.
Speaker Change: Okay, thanks so much, Kevin and Siva. We're now ready to begin the live portion of today's call. Operator, please open up the lines for questions.
Operator: Thank you. The floor is now open for questions. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to redraw your question, simply press star 1 again. If you are called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Your first question comes from the line of Doug Dunn with Evercore.
Speaker Change: Thank you. The floor is now open for questions.
Speaker Change: If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. If you are called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question.
Speaker Change: Your first question comes from the line of Doug Dunn with Evercore. Doug, your line is now open.
Operator: Doug, your line is now open. Thank you. Hi, team. Congratulations again.
Doug Dunn: Thank you. Hi team, congrats again on the nice deal with PowerCo. I just wanted to ask about what your timeline looks like with that partnership now consummated. So does this make any change to the b-sample timing, on other commercialization timing, or, you know, is everything just the same sans the capital spending on GigaFactory?
Doug Dunn: Thank you. Hi team. Congrats again on the nice deal with PowerCo. I just wanted to ask about what your timeline looks like with that partnership now consummated. So does this make any change?
Speaker Change: on the B-sample timing, on other commercialization timing, or, you know, is everything just the same sans the capital spending on GigaFactories?
Greg: Thanks, Greg.
Siva Sivaram: We have already told you what our big goals for this year are, getting Alpha 2 to customers, making sure low-volume B-sample production starts this year, ramping up Raptor, and getting ready for Cobra. They won't change for next year, getting ready for high volume B samples. That doesn't change either. So, in the big picture, this deal has been signed, and we will begin collaborative work immediately, but our goals and targets in the short term do not.
Speaker Change: To the first order.
Speaker Change: We have already told you what our big goals for this year are. Getting Alpha 2 to customers, making sure low-volume B-sample production starts this year, ramping up Raptor, and getting ready for Cobra. They don't change.
Speaker Change: For next year, getting ready for high-volume B-samples, that doesn't change either. So in a big picture, this deal has been signed and we will begin collaboration work immediately, but our goals and targets in the short term do not change.
Siva Sivaram: Okay, excellent. And then I'll just ask, you know, one more question on whether more of these deals are likely to follow as the new sort of modus operandi or the approach that you're going to take, or, you know, if you've opted for a more wait and see approach to understand how this first tie-up goes. It sounds like yes from your prepared remarks, but I wanted to give you the opportunity to expand on that. Thanks, team! Yeah, that's a very good question, Doug. We are
Speaker Change: Okay, excellent. And then I'll just ask, you know, one more here on if more of these deals are likely to follow as the new sort of modus operandi or the approach that you're going to take, or, you know, if you've opted for a more wait and see approach to understand how this first tie up goes, you know, it sounds like yes, from your prepared remarks, but wanted to give you the opportunity to expand on that. Thanks, team.
Siva Sivaram: Yeah, that's a very good question, Doug. We are a very highly differentiated technology that adds a lot of value to the customer. So we expect to see a lot of interest in what we are offering. However, the model we are going with, which is a high-touch licensing model, requires that we be very strategic and prudent in our customers. So there is going to be a level of careful inspection in matching our customers' needs with us. So we're going to be very, very picky and careful in the way we get to the next.
Speaker Change: That's a very good question, Doug. We are a very highly differentiated technology that adds a lot of value to the customer. So we expect to see a lot of interest in what we are offering.
Speaker Change: However, the model we are going with which is a high-touch licensing model
Speaker Change: requires that we be very strategic and prudent in our customers. So there is going to be a level of
Speaker Change: Careful inspection in matching our customers' needs and us. We're going to be very, very picky and careful in the way we get to the next deal.
Speaker Change: Awesome. Thanks, everyone.
Operator: Your next question comes from the line of Joe Spak with UBS. Joe, your line is now open.
Speaker Change: Your next question comes from the line of Joe Spak with UBS. Joe, your line is now open.
Gabriel J. Daoud: Hi, this is Gabriel for Joe. Thank you for taking my questions.
Gabriel: Hi, this is Gabriel for Joe. Thank you for taking my questions. Kevin, I just want to go back on monetization of the power co-agreement. I know you can't disclose the specifics, but...
Kevin Hettrich: Kevin, just want to go back on the monetization of the power co agreement. I know you can't disclose the specifics, but can you kind of give us a sense of what you'll be charging Powerco for? Like, is it a percent of the ASP or the COGS of the entire battery cell? Or would you only be charging for the materials and costs specifically used for your ceramic separator?
Speaker Change: Can you kind of give us a sense of what you'll be charging Powerco for, like is it a percent of the ASP or the cogs of the entire battery cell, or would you only be charging for the materials and costs specifically used for your ceramic separator process?
Kevin Hettrich: Gabriel, thank you for the question. I understand that these are important inputs into your modeling going into the future.
Speaker Change: Gabriel, thank you for the question. I have empathy that these are important inputs into your modeling going into the future. We'll just point you back to the contract that we attached to our 8k in Article 3 of the IP licensing agreement.
Kevin Hettrich: We'll just point you back to the contract that we attached to our 8K in Article 3 of the IP Licensing Agreement. It does have detail on the royalty rate, and there's a section on outperformance sharing. Unfortunately, we won't be going beyond the detail of what we already provided in that contract.
Speaker Change: does have detail on the royalty rate, and there's a section on outperformance sharing. Unfortunately, we won't be going beyond the detail of what we already provided in that contract on this call.
Gabriel J. Daoud: Understandable, and I appreciate it. One more thing, and then Gabriel, just one thing to add is that not providing very specific detail in the contract is customary, as it is in the best interest of both parties not to disadvantage ourselves in further negotiation, and especially for Quantumscape as this deal could be a template for future such licensing deals. It's also in our shareholders' interest. Now that makes sense. I appreciate it. And just to clarify on the $130 million of prepaid royalties, do you get that immediately? And now it's implemented into your cash runway forecast? Or are you unable to access it until the technical requirements are met?
Gabriel: Understandable. Appreciate it.
Gabriel: Oh, and then Gabriel, just one thing to add is just that...
Speaker Change: that not providing very specific detail in the contract is customary, as it is in the best interest of both parties.
Speaker Change: not to disadvantage ourselves in further negotiation, and especially for Quantumscape as this deal could be a template for future such licensing deals. It's also in our shareholders' interest.
Speaker Change: Now that makes sense, I appreciate it. And just to clarify on the $130 million of prepaid royalties, do you get that immediately and now it's implemented into your cash runway forecast or are you unable to access it until the technical requirements are met?
Kevin Hettrich: So the $130 million initial prepayment of the royalty is contingent on satisfactory technical progress being made. As Siva mentioned in his remarks, it's things like those B-sample shipments, progress on COBRA, and finalization of the final target cell design. To your question, it is an input into our cash runway that now extends into 2028.
Speaker Change: So, the $130 million initial prepayment of the royalty is contingent on satisfactory technical progress being made. Siva mentioned in his remarks it's
Speaker Change: things like those B-sample shipments, progress on COBRA, finalization of the final target cell design. To your question, it is an input into our cache runway that now extends into 2028.
Kevin Hettrich: So it would be usable as from when you get it.
Speaker Change: So it would be usable as of when you get it.
Kevin Hettrich: It would be usable as we get it for cash runway purposes. We, of course, reserve the right in our methodology to be as conservative as we can realistically be. We like to issue guidance and achieve it.
Speaker Change: It would be usable as we get it for cache runway purposes. We, of course, reserve the right in our methodology to be as conservative as we can realistically be. We like to issue guidance and achieve it.
Gabriel J. Daoud: Great, thanks. I'll pass it on.
Speaker Change: Great, thanks. I'll pass it on.
Operator: Your next question comes from the line of Jordan Levy with Truvy Securities. Jordan, your line is now open.
Speaker Change: Our next question comes from the line of Jordan Levy with Truvy Securities. Jordan, your line is now open.
Jordan Alexander Levy: Afternoon all, and congratulations again on the deal. Maybe we kind of touched on this, but if you could just help us understand a bit more how the work with the joint team at PowerCo and the core Quantumscape team will differ from what you're already kind of doing on Raptor and Cobra. I guess you know not to get too into the details. I'm just not sure I understand kind of the difference between the collaborative work and the work being done as you kind of push manufacturing or commercialization.
Jordan Alexander Levy: Afternoon all and congratulations again on the deal.
Jordan Alexander Levy: We kind of touched around this, but if you could just help us understand a bit more how the work with the joint team at PowerCo and the core Quantumscape team work will be.
Speaker Change: differ from what you're already kind of doing on Raptor and Cobra. I guess, you know, not to get too into the details, I'm just not sure I understand kind of the difference between the collaboration work and the work being done as you kind of push manufacturing or commercialization.
Siva Sivaram: Jordan, thank you. The basic work on QSC-5, that platform, is done by us. That's what the B sample is, the small volume production that is starting this year and the larger volume B sample that is starting next year. We need to take that, and we will agree on a target design and industrialize it to the gigawatt scale. That work will be jointly done by a group of experts, approximately 150 people initially, that will start working in San Jose.
Jordan: Jordan, thank you.
Jordan Alexander Levy: The basic work on QSC-5, that platform, is done by us here.
Speaker Change: That's what the B sample is, the small volume production that is starting this year and the larger volume B sample that is starting next year.
Speaker Change: We need to take that and we will agree on a target design and industrialize it to gigawatt scale.
Speaker Change: That work will be jointly done by a group of experts, approximately 150 people initially, that would start working in San Jose.
Siva Sivaram: And as that work matures, and we begin to transfer to a PowerCore site. We will move from here into the PowerCore site, and more and more and more people will join from PowerCore to ramp it up for production. So the intent here is this word industrialization, the core technology to be made to be compatible with high-volume production in a gigawatt-scale factory. Yeah, and...
Speaker Change: And as that work matures and we begin to transfer to a PowerCo site, we will move from here into the PowerCo site, and more and more and more people will join from PowerCo to ramp it up for production.
Speaker Change: So the intent here is this word industrialization, the core technology to be made to be compatible with high volume production in a gigawatt scale factory.
Kevin Hettrich: Yeah, and Jordan, if I could just put a little color around that, in Volkswagen Group and PowerCo specifically, you have one of the most committed partners to electrification, a large balance sheet, strong leadership, like what a fantastic partner to combine with our differentiated solid-state lithium metal technology and the benefits we'd like to bring to the cell and to the vehicle level in terms of energy density, power, and safety.
Speaker Change: Yeah, and Jordan, if I could just put a little color around that, in Volkswagen Group and PowerCo specifically, you have one of the most committed partners to electrification, a large balance sheet, strong leadership, like what more fantastic
Speaker Change: partner to combine with our differentiated solid-state lithium metal technology and the benefits we'd like to bring to the cell and the vehicle level in terms of energy density, power, and safety.
Kevin Hettrich: I totally, totally agree and appreciate that. Maybe just a quick follow-up to the prepared remarks you all talked about on the safety metrics, the possibility to open up some new markets that the current technology is unable to serve effectively. I just wanted to see if there's anything specific you were referring to there, if there's anything of interest.
Speaker Change: Totally agree and appreciate that. Maybe just a quick follow-up in the prepared remarks you all talked to on the safety metrics, the possibility to open up some new markets that the current technology is unable to serve effectively. I just wanted to see if there's anything specific you were referring to there, if there's anything of interest.
Siva Sivaram: Yeah, so before I go too far, I want to make sure that safety testing is never completed. We will continue to test, and these were with prototype samples, and we need to do the same thing with the final product, and we need to collect a lot more data.
Speaker Change: Yeah, so before I go too far, I want to make sure that safety testing is never complete. We will continue to test and these were with prototype samples and we need to do the same thing with final product and we need to collect a lot more data.
Siva Sivaram: We have a technology that, because of the ceramic separator and the solid-state nature of our technology, we are inherently safe. What this does is if you are trying to design a pack or a module, additional heat and thermal separation, precautions that you need to take, you have advantages with our inherently safer device. Now, you think of an application, I'm just using a fairly generic application as a long haul truck. A long haul truck carries more than a megawatt hour of batteries. Currently, making sure that a megawatt hour of trucks can have the safety standards that you would want them to have is a very onerous technical problem. The additional safety precautions, the additional engineering, the additional safety technology that needs to be added.
Speaker Change: Having said that...
Speaker Change: We have a technology that because of the ceramic separator
Speaker Change: and the solid-state nature of our technology, we are inherently safer.
Speaker Change: What this does is if you are trying to design a pack or a module
Speaker Change: additional heat and and thermal separation precautions that you need to take
Speaker Change: you have advantages with our inherently safer device.
Speaker Change: Now, you think of an application, I'm just using a fairly generic application as a long-haul truck.
Speaker Change: A long haul truck carries more than a megawatt hour of batteries in it.
Speaker Change: Currently, making sure that megawatt hour of trucks can have.
Speaker Change: the safety standards that you would want it to have.
Speaker Change: It's a very onerous technical problem. The additional safety precautions, the additional engineering, the additional safety technology that needs to be added.
Siva Sivaram: We now make that eminently possible. That's the kind of opportunity we're talking about. Of course, in existing applications, whether it is an automotive or a consumer electronics, you can inherently see the value of better safety that it brings.
Speaker Change: We now make that eminently possible.
Speaker Change: That's the kind of opportunity we are talking about.
Speaker Change: Of course, in the existing applications, whether it is in automotive or consumer electronics, you can inherently see the value of better safety that it brings us.
Jordan Alexander Levy: I absolutely appreciate that.
Speaker Change: Absolutely appreciate that.
Operator: Your next question comes from the line of Jed Dorzheimer with William Blair. Jed, the line is now open.
Speaker Change: Your next question comes from the line of Jed Dorzheimer with William Blair. Jed, the line is now open.
Mark Haywood Shooter: Hi, this is Mark Shooter on behalf of Jed. You mentioned consumer electronics in the opening remarks and the shareholder letter. I was wondering if you could explain or give any more color on that. Do you see that as a potential green shoot for revenue before an electric vehicle?
Speaker Change: Hi, this is Mark Shooter on Forged.
Mark Haywood Shooter: You did mention the consumer electronics in the opening remarks and in the shareholder letter. I was wondering if you could explain or give any more color on that. Do you see that as a potential green shoot for revenue before an electric vehicle?
Siva Sivaram: Mark, I believe the reference was specifically to the Alpha 2 shipments that went to a number of customers, including those in the automotive and consumer electronics sectors. As you can imagine, a differentiated technology that has advantages in safety, power, and energy density is very interesting to any application that has a battery in it.
Speaker Change: Mark, I believe the reference was specifically to the Alpha 2 shipments, which went to a number of customers, including those in the automotive and consumer electronic sectors.
Speaker Change: as
Speaker Change: As you can imagine, a differentiated technology that has advantages in safety, power, and energy density.
Speaker Change: is very interesting to any application that has a battery in it.
Siva Sivaram: That's true of consumers. That's true, certainly, of the automotive industry. We are very much an automotive-focused company. You see that just in the sheer number of, like, this release of our deep partnership with VW and PowerCo, that is where our focus lies. That's it. We do receive interest from those parties, and we do continue to sample into them as we think it creates optionality. And on this call, there's nothing to add in terms of the timing of revenue.
Mark Haywood Shooter: Understood. Thanks, Nicola.
Speaker Change: That's true of consumer. That's true, certainly, of automotive. We are very much an automotive-focused company. You see that just in the sheer number of, like, with this release, the deep partnership with VW and PowerCo. That is where our focus lies.
Mark Haywood Shooter: And just seeing with all the AI apps coming out and being pushed to on-device, I can see that the battery demand on-device could have a pretty big pull for most customers. So, I'm looking forward to any updates in the future. 1 last 1 is, I know you are focused on EVs, but in a similar vein, EVtalk company is the electric vehicle or, sorry, the vertical landing and takeoff. Do you see that as a potential as well? Are you talking?
Speaker Change: That said, we do receive interest from those parties and we do continue to sample into them as we think it creates optionality. And on this call, there's nothing to add in terms of the timing of revenue.
Speaker Change: Understood. Thanks, Nicola. And just seeing with all the AI apps, you know, coming out and being pushed to on-device, I can see that the battery demand on-device could have a
Speaker Change: Pretty big pull through for most customers, so looking forward to any updates in the future. One last one is, I know you are focused on the EVs, but in a similar vein, EVtalk company, the electric vehicle, or sorry, the
Speaker Change: the vertical landing and takeoff. Do you see that as a potential as well?
Siva Sivaram: Clearly, we are in conversation. EBITDAs uniquely have an additional requirement that they require a lot of power during takeoff and landing, and they require a lot of energy for the range. The uniqueness of our differentiated technology is that we are good with both energy and power. Now, having said that, Our initial focus is, of course, the automotive sector, and we have just entered into this very big deal with PowerCo. We are watching all of these other additional opportunities.
Speaker Change: Are you talking to any of those customers?
Speaker Change: Clearly we are in conversations.
Speaker Change: eVTOLs uniquely have an additional requirement that
Speaker Change: They require a lot of power during takeoff and landing and they require a lot of energy for the range.
Speaker Change: The uniqueness of our differentiated technology is that we are good with both energy and power.
Speaker Change: Now, having said that.
Speaker Change: Our initial focus is, of course, in the automotive sector, and we have just entered this very big deal with PowerCo. We are watching all of these other additional opportunities very carefully.
Siva Sivaram: I would just add that aviation is certainly a application that greatly appreciates differentiated safety as well, which plays into the whole system design. And then, just as a passenger on airplanes, from time to time, it is nice that they are robustly safe.
Speaker Change: We'll just add that aviation is certainly an application that greatly appreciates differentiated safety as well, which plays into the whole system design. And then just as a passenger on airplanes from time to time, it is nice that they are robustly safe.
Mark Haywood Shooter: Got it. Thank you. Thanks for the call.
Speaker Change: Got it. Thank you. Thanks for the call.
Operator: Your next question comes from the line of Ben Kallio with Baird. Ben, your line is now open.
Speaker Change: Your next question comes from the line of Ben Kallio with Baird. Ben, your line is now open.
Benjamin Joseph Kallo: Hey, good evening, guys. Congratulations on the PowerCo deal. I think that was the first time I ever heard you guys say truck.
Benjamin Joseph Kallo: Hey, good evening, guys. Congratulations on the PowerCo deal.
Benjamin Joseph Kallo: Maybe just you touched on trucks and just do you guys have you guys tested with any trucks or is that in the plans or any discussions? I think that was the first time I ever heard you guys say trucks.
Siva Sivaram: When I'm illustrating the differentiated advantages of safety, we often take safety for granted.
Speaker Change: When I'm illustrating the differentiated advantages of safety
Speaker Change: We often take safety for granted.
Siva Sivaram: But for a cell to come back and say that we have thermal stability checked up to 300 degrees C opens up a lot of new opportunities. Having said that, our focus clearly remains with EV for now. We are working closely with Powerco. Powerco, serving Volkswagen, has a very, very broad brand portfolio that includes every segment of the mobility market. So we are talking closely with Powerco.
Speaker Change: But for a cell to come back and say that we have thermal stability checked up to 300 degrees C.
Speaker Change: opens up a lot of new opportunities.
Speaker Change: Having said that, our focus clearly remains with EV for now.
Speaker Change: We are working closely with Powerco. Powerco, serving Volkswagen, has a very, very broad brand portfolio.
Speaker Change: that includes every segment of the mobility market.
Speaker Change: So, we are talking closely with PowerCode.
Siva Sivaram: Great. And then, you know, for the remainder of their customers. Do you think that, you know, this or has this changed your discussions with them and their desire, you know, to move faster, or is it kind of a wait and see approach? I think you touched on this a little bit earlier. And then maybe what about any new customers, you know, approaching you or new potential OEMs approaching you?
Speaker Change: Okay and then you know for the remainder of their customers
Speaker Change: Do you think that this or has this changed your discussions with them and their desire to move faster or is it kind of a wait-and-see approach? I think you touched on this a little bit earlier.
Speaker Change: And then maybe, what about any new customers approaching you or new potential OEMs approaching you?
Siva Sivaram: And once we announced the deal, we individually updated.., every one of our customers and there is a large continued interest from our customers. We have also sampled and continue to sample Alpha 2s to multiple automotive and consumer electronics OEMs. And we take their feedback into how we design and run the B-sample. The interest from our OEM partners has been very, very strong. Having said that, the PowerCore model is a, Hi-Touch Intellectual Property Intensive, transfer of a technology to a customer. So we are very carefully evaluating every customer's needs so as we can develop a model specific to them with us having the preference of. The Capital Light Approach.
Speaker Change: Then once we announced the deal, we individually updated every one of our customers and there is a large in continued interest from our customers.
Benjamin Joseph Kallo: Okay, thank you very much.
Speaker Change: We have also sampled and continue to sample Alpha 2s to multiple automotive and consumer electronics OEMs.
Speaker Change: and we take their feedback into how we design and run the B-samples.
Speaker Change: The interest from our OEM partners has been very, very strong.
Speaker Change: Having said that, the PowerCore model is a
Speaker Change: high-touch
Speaker Change: Intellectual property intensive transfer of a technology to a customer. So we are very carefully evaluating every customer's needs so as we can develop a model specific to them with us having the preference of
Speaker Change: The Capital Light Approach.
Speaker Change: Okay, thank you very much.
Operator: That concludes our Q&A session. I will now turn the conference back over to the Quantumscape team for closing remarks.
Speaker Change: That concludes our Q&A session. I will now turn the conference back over to the Quantumscape team for closing remarks.
John Sager: 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. Thank you.
Speaker Change: Thank you for...
Speaker Change #100: 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. Thank you.
Operator: This concludes today's conference call. You may now disconnect.
Speaker Change: This concludes today's conference call. You may now disconnect.