FREYR Battery Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 9, 2023

There are 10 speakers on the call.

Operator

Thank you for standing by. My name is Jessica and I will be your conference operator today. At this time, I would like to welcome everyone to the Friar Battery Third Quarter 2023 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Operator

Star followed by the number 1 on your telephone keypad. If you would like to withdraw your questions, press star 1 again. I would now like to turn the call over to Jeff Siddle, VP of Investor Relations. Please go ahead.

Speaker 1

Hello, and welcome to Freer Battery's Q3 2023 earnings conference call. With me today on the call are Berger Steen, our Chief Executive Officer Oscar Brown, Board

Speaker 2

of Directors, our Chief Financial

Speaker 1

Officer Jan Arbe Hagen, our Chief Operating Officer Jeremy Bezdek, Executive VP of Corporate Development and President, Fair Battery U. S. During today's call, management may make forward looking statements about our business. These forward looking statements involve significant risks call to predict. Additional information about risk factors that could materially affect our business are available in Frayer's S-one and Annual Report on Form 10 ks Bob with the Securities and Exchange Commission, which are available on the Investor Relations section of our website.

Speaker 1

With that, I'll turn the call over to Berger.

Speaker 3

Thanks, Chad. Hello, everyone, for joining today's call. We'll start today with an overview of what we believe is Freyr's compelling equity story. Value proposition is based on the premise that electrification is both inevitable and reliable mass deployment in batteries. Well, in today's higher for longer cost of capital environments, the companies who will emerge as the next leaders of the energy transition multi balance growth aspirations with rigorous financial discipline.

Speaker 3

Our team at Freyr is unified in that vision of the business And we're committed to build upon a unique competitive position with that approach. With that in mind, We're excited about the opportunities we have to establish Freyr as a leading developer and scaler of battery technologies across the energy storage and electric mobility sectors. Tesla has started earlier this year, the long term growth potential in our core markets is profound and aligned with decarbonization initiatives, Western Energy Security cumulative public policy highlighted by the Inflation Reduction Act in the U. S. As stewards of your precious capital, Our responsibility is to maintain the liquidity we need to convert these opportunities, which are punctured by a growing universe of REIT options to the into lasting shareholder value.

Speaker 3

We intend to do that by protecting our strong balance sheet and deploying capital selectively We've advanced our ongoing capital formation initiatives, diversifying on the technology spectrum and battery value chain, maximizing the IRA incentives and finally developing our highest return projects. Turning to Slide 4, Let's review our key messages this quarter. As you saw on this morning's release, we're contending with the delay in our progress to fully automated introduction at the CPP. And we have implemented a detailed plan to address the complex challenge of scaling the 24 ms semi solid platform. In light of the current CPP calendar, the U.

Speaker 3

S. Team has reached out Gigamerica to pursue the full scale project from 2 parallel paths. Part 1 is based on the 24 ms semi solid technology. And Part 2 is to leverage conventional technology. As Jeremy will document shortly, these two paths are not mutually exclusive options for the Giga America side and they're aligned with our strategy of expanding on the battery technology spectrum.

Speaker 3

Turning to the Gigabit Arctic project, we have elected to minimize spending in 2024 While our work continues at the CQP, involving engaged with an region and European government stakeholders, established framework conditions that place the project Globally Competitive Economic Terms. Moving to Slide 5. The playbook to navigate today's high volatility environment is as follows. We're initiating a cost rationalization program to reduce our total run rate cash spending by over 50% in 2024, which will extend our liquidity runway to 2 plus years. Oscar will elaborate in the short term.

Speaker 3

While we're saving our balance sheet, we've only been able to move as quickly as we would like in every front. I want the following point to be clear. Fair is not going into hibernation. We'll continue our important work at the CQP where We will hold our vendors and partners jointly accountable for our progress. We're pursuing conventional technology partnerships, We will continue to fund critical initiatives We believe will generate value for our shareholders and we will advance our key priorities while we maintain the strategic flexibility that's necessary to drive The pipeline to achieve automated production of InSpec cells has pushed beyond our previous goal of the Q4 2023.

Speaker 3

Commissioning of the casting and unit cell assembly equipment, which is highly complex, proving to be more difficult and time consuming than we previously envisaged. We're attempting to scale a new battery technology with intricate next generation equipment, which has and will continue to impose engineering challenges. Our response to these challenges is to implement a plan to prevent further delays. We have implemented changes project governance. For heightened coordination with our vendors and ecosystem partners And we are elevating the involvement of our battery subject matter experts and all the relevant partners inside and outside of FERC.

Speaker 3

This initiative is spared by information of the Technology Advisory Board comprised of some of the industry's foremost minds, including Doctor. Dan Steingard, FRAIR Board Member and Co Director the Columbia University Electrochemical Energy Center. Doctor. Steingard and his fellow advisory board members are drawing on their collective wealth of commercial and operating experience to assist our team at the CQP. Let's go to Slide 7 for a brief overview of our technology strategy.

Speaker 3

Our strategy has always been to establish first business across the technology spectrum and into value accretive adjacencies within the Malibu Valley chain We are working on that front. We're pursuing conventional technology partnerships to complement 24 ms Semi Solid, to financing and commercial development and potentially accelerate project development timelines. Conversations we're having are exciting and our investment in the unique position we're establishing in the marketplace as an industrial partner of choice. The pursuit of technology diversification is intended to be complementary and additive to 24 ms Semi Solid and in no way diminishes our excitement About 24 ms's potential, it's a fit for purpose solution across a variety of growing use cases. Although scaling the platform at the CPP is proving to more challenging than we anticipated.

Speaker 3

We believe we have the financial organizational resources to do it And we believe that it's a worthwhile investment of our time. We'll now turn to slide 8 and Gigarctic. We announced this morning that we're minimizing spending on Gigartic in 2024, because we need to prioritize liquidity during the CPP scale up focus on capturing IRA incentives in the United States. We value our partners and supporters in Moirana The CQP remains our 1st operating asset and the technological heart of Inclivity. The higher for longer interest rate environment and introduction of the IRA have changed the business case for Gig Arctic.

Speaker 3

We must operate within And today the project is no longer in competitive economic terms, but the opportunities that we have in the U. S. As stewards of your capital, We have a fiduciary obligation to invest in our highest return projects and we intend to fulfill that duty by making sensible business decisions. While we minimize spending on the Arctic in 2024, we'll continue to work with stakeholders and with holders and in reaching the European governments framework conditions that are competitive with the IRAs with Canada's variable cost offsets under capital spending initiatives in countries in the rest of the world, all of which are required to come to China's structural cost advantages and dominant market share across the battery supply chain. We look forward to engaging locally to promote the purchase of establishing decarbonized battery production here in Norway.

Speaker 3

In the room, we will spend the previously committed CapEx in Think Arctic to secure the asset to serve the option value of the project. Conference call. And with that, I'll turn the call over to Jerry. Thank you, Berger.

Speaker 4

Please take a look at Slide 9 for the Giga America update. As we highlighted in the Q2 earnings call in August, continued feedback from potential investors related to the Giga America Financing I stress the importance of technology validation at the customer qualification plan. The CQP delays that Berger mentioned have impacted our ability to close the Phase 1a two line fast track project financing within the previously discussed timelines. With that, the Giga America team has decided to take a refreshed look at the project and the business case. The value of the time advantage related to the Fast Track project has decreased significantly, leading us to make the decision to terminate the 2 line project.

Speaker 4

We see significant value in adjusting our focus to the larger project Phase 1b that was the original plan for the site. We believe that with validation at the CQP to come, we have the right roster of potential investors to secure the equity financing for a 24 ms based production facility in Georgia. Additionally, the larger project aligns well with our DOE financing plan that Oscar will discuss. We are now working toward a potential FID of the larger 24M based project along with potential DOE and equity financing some point late in 2024. Additionally, we are pursuing a second track for Giga America as Berger mentioned.

Speaker 4

We are currently Multiple conversations with potential conventional technology partners around advancing a project utilizing that conventional technology at the Georgia site. Due to the lack of technology risk involved with that option, timing of both FID and start up production could provide us an earlier entry into the U. S. Market. Our plan involves making a technology and partner selection in the near term and we will announce that decision when that selection is made.

Speaker 4

We're excited about the opportunity to get into the U. S. Market with production assets sooner and the site in Georgia is large enough to accommodate both a conventional and the 24 ms production facility with plenty of room to spare. We look forward to providing you more updates on both tracks As we progress through the end of the year and into 2024. I will now turn it over to Oscar to provide a general finance update As well as an update on the redomiciliation efforts.

Speaker 2

Oscar? Thank you, Jeremy. On Slide 10, we provide an update regarding our announcement to redomicile from Luxembourg to the United States. This move dramatically expands our opportunity for equity index inclusion. Today, only an estimated 3% of our shares are held by index funds, paired with a peer average of over 20%.

Speaker 2

We domiciling has the potential to drive incremental holdings of up to 45% of our current market capitalization if we were held by all the index funds we would qualify for, as well as associated actively managed funds who benchmark against those indices. Moving our domicile to the U. S. Also has the added benefit of aligning failure With the country that has offered the highest expense for battery manufacturing at scale in the world, as well as the world's largest market for our products. The U.

Speaker 2

S. And Delaware have well understood corporate governance and disclosure requirements, and we will still be able to maintain our European strategies alongside our U. S. Efforts. The transaction to move from Luxembourg to the U.

Speaker 2

S. Requires an extraordinary shareholder meeting, which is now set for December 15 for shareholders of record as of fiscal year. The transaction requires 50% of our outstanding shares to vote in order to ensure a forum And 2 thirds of those shares voting must vote in favor of the transaction for it to close. It is very important that all shareholders vote. Details of the transaction can be found in filings under Fire Battery Inc.

Speaker 2

On the SEC's website and through links on our own website. We expect to close the transaction by year end. Moving on now to Slide 11, the financial update slide of the earnings deck. I will review our recent financial results. The quarter ended September 30, 2023, Pratt reported a net loss of $10,000,000 or $0.07 per share $70,000,000 non cash loss on our warrant liability fair value adjustment due to changes in our stock price.

Speaker 2

This slide item reflects a gain on our stock price declines during any reporting period and a loss when our stock price increases. Q3 of this year, we recognized a $24,000,000 non cash gain on this item. For the 9 months ended September 30, 2023, the company reported a net loss of $48,000,000 or $0.34 a share compared with a net loss of 124,000,000 or $1.06 per share in the same period last year. More importantly, the company reported higher general and administrative expenses As well as higher research and development costs for the Q3 and the 9 months ended September 30 compared with the same periods last year. Logically, this is a function of our larger organization, which has been managing more projects around the world.

Speaker 2

Looking ahead to 2024, we have initiated a significant cost cutting and resource prioritization program focusing on the CQP and Giga America, which will significantly reduce our annual cash burn rate as we seek to extend our liquidity runway More than 2 years and into 2026 and focus on those 2 projects, all before we raise additional capital. We expect a material reduction in G and A and capital commitments in 2024 compared to 2023. Regarding our cash investment rate and liquidity, we spent net cash of $235,000,000 during the 1st 9 months of 2023, which included $169,000,000 on capital expenditures. During the Q3, Fyres spent $41,000,000 on capital expenditures, of which $32,000,000 was spent on GigARTC and about $7,500,000 was spent on the customer qualification plant and test center. Capital expenditures were partly offset by receipt of a $3,500,000 grant in the United States.

Speaker 2

We ended the 3rd focus on completing and securing the initial buildings of Gig Arctic as well as completing and ramping up the customer qualification plan. Major additional capital expenditures in 2024 will be dependent on project level financing as we preserve ample burn rate and runway for the company. Our near term priorities again remain ramping up the CQP, securing the initial buildings at Giga Arctic as we continue to seek a globally competitive incentives package Scaling Battery Manufacturing from the Government of Norway, as well as progressing GigAmerica. We provide additional guidance on capital expenditures only upon the success of the Giga America initial capital raise, which we now expect in 2024 as it is tied directly to the successful automated inspection of batteries at the CQP and the testing of those batteries by our largest customer. While we continue to work with the Norwegian government on incentives programs And we'll do so throughout next year.

Speaker 2

We are not currently forecasting any capital expenditures for GigARTC in 2024. We expect capital expenditures in the Q4 of this year will be in the $40,000,000 range. We expect that we'll end the year with cash and cash equivalents of approximately $250,000,000 when G and A, R and D and giga America costs are included. Again, any significant capital expenditures in 2024 will only be sanctioned once new financing is secure. Given our cash balances, expected spending through the year of 2023 and the reduced cash requirements for 2024 pending any new financing, we've ensured Friar has a cash runway of more than 2 years.

Speaker 2

As a result, our total cash uses in 2024, legally less than half of that of 2023, at least until we secure project level financing. Slide 12, we emphasize as our key financial messages as we position the company for the current environment. Checking the balance sheet and taking actions within our control on costs and spending to extend our runway into 2026 are our key focus areas. The actions we are taking now, we are targeting an annual cash burn rate in 2024, less than half of that in 2023, the priorities already mentioned. This enables us to invest in some additional R and D and related items to enhance our manufacturing projects and our products, We will proceed with those with caution as incremental technology investment would of course reduce our cash runway modestly.

Speaker 2

Again, we will not spend any meaningful capital financials until incremental financing is secured. Our pursuit of non dilutive capital remains in high gear in this currently challenging financing environment. Given our liquidity position and our lower burn rate, we do not have any intention to raise common equity from our shareholders in 2024. As Jeremy described, project level equity for Giga America is available and is clearly tied to getting the CQP up and running as designed, producing testable batteries and receiving those acceptance of those batteries, which is now expected again in 2024. In parallel, we continue to progress the U.

Speaker 2

S. Department of Energy Title 17 loan for the project and are awaiting invitation to Part 2 of the process from the DOE. After receiving that invitation, we will file Part 2 of the application, but then the effort becomes very similar to a project financing process, Which we will anyway run-in parallel to ensure timely access to funds. The DOE could in theory provide for all of our debt capital ambitions, but more likely will be part of an intricate Capital Stack. We will keep investors informed over the next several quarters as we make progress on these efforts.

Speaker 2

Section 45X of the IRA with its annual production tax credits Brad's key underlying support to the financing of Giga America unlike anywhere else in the world. In addition, we are staying vigilant federal grant opportunities in the U. S. That could be applicable to our businesses. We'll continue to preserve the project financing option for Giga Arctic as well.

Speaker 2

And we recently announced that we were awarded €100,000,000 grant for Giga Arctic by the European Innovation Fund, the EUIF, This is an outstanding validation of our business model. The review by the EUIF has been very intensive, covering hundreds of pages of documentation over the course of the last year. We continue to work with them extensively, finalize the terms of the grant and a relatively flexible timeline to continue the project Globally Competitive Scaling Incentive Programs is available. While we also have been grateful for the support and indications of interest expressed by all our Credit agencies, including Exane and the Nordic Investment Bank, the European Investment Bank and the EU Innovation Fund. It is important to note that prior has not any cash from these entities so far and all progress on GigaArt taking the CQP to date has been made without yet having received funding from any of these entities.

Speaker 2

Lithica America prioritized in large part due to its superior returns driven by eligibility for U. S. IRA production tax credits. We'll also evaluate partnership based upstream opportunities, address decarbonization of the supply chain and leverage our growing Leverage and Grow, our Energy Transition Acceleration Coalition, the Etech and other industrial partnerships where possible. With that, I'll turn it back over to Berger for additional comments.

Speaker 3

Thanks, Oscar. Before we take your questions, let's close with a look at Ferris' path forward In today's high discount rate environment, cash is king. We have a clean balance sheet with no debt We're reducing our cost to extend our liquidity runway to 2 plus years and beyond. We will not authorize any significant new CapEx 2020 4 until new financing is committed. We are pursuing conventional technology partnerships advancing the We're domiciding to the U.

Speaker 3

S, progressing through the commissioning and 24 ms scale up processes at the CPP. We will communicate news on all three fronts with the investment community as things develop. Our partnership approach to industrialization is generating dozens of interesting strategic conversations with our customers, with members of the Energy Transition Acceleration Coalition and other partners, All of which are focused on commercial opportunities and catalyzing Freyr's next wave of capital formation. Norway and Europe, We're working with key stakeholders to establish a globally competitive incentive program while we preserve Giga Arctic's option value. And finally, we're executing our strategic plan with clear priorities.

Speaker 3

And as we have learned over the last two and a half years as a public company, Adaptability is paramount to succeeding in a highly volatile environment. I'll conclude by emphasizing our appreciation for the continued support of our investors and all our partners in our mission to decarbonize energy storage and transportation systems by producing the world's cleanest batteries. The Ferrer team is unified in our purpose and we're dedicated to rewarding your faith in us on this exciting journey. And with that, I'll turn the call back to Jeff We'll take your questions.

Speaker 1

Thanks, Birger. Operator, we're ready to open the line for Q and A.

Operator

And your first question comes from the line of Adam Jonas with Morgan Stanley. Adam, go ahead.

Speaker 5

Thanks everybody and appreciate the extra details on the cash outlook. That's helpful. But so much of the story really does rely on the technology of 24 ms. So At a high level, Burger, how much of Frayer's success is tied to 24 If this turns out to be a dud and I'm curious at what when will you when would you potentially Be in a position to understand whether 24 ms really is scalable as you originally anticipated or not, because it does seem that Everything else kind of triggers off of that. And I appreciate the diversification strategy, but it's important for shareholders to know how Hi, the entire story is to 24N specifically.

Speaker 5

So if you could realize it's a qualitative question, but I would appreciate your impressions, please.

Speaker 3

Sure, Adam. First, as you indicated, we think those 2 tracks we've now indicated The awards are getting started in the Giga America is one track where we have some technology risk, Talk more about in a second. You have that geopolitical advantage and variable risk, then Pursue another Mac, which will be licensing conventional technology, with essentially the opposite characteristic, Sound geopolitical risk, but very low technology risk. So 2 unformatted paths, if you will. And then inside of the 24M path, I think it's fair to say that as we progress towards last commission packages that we're delivering in the CPP and getting ready for production.

Speaker 3

We're also getting into some of the harder stuff. And It is also fair to say that we are discovering aspects of our chosen solution And we have had the technology readiness level that we would have anticipated in making choice and until now in fact. That's just a part of getting to the stage we're at now, very difficult to foresee upfront. All of that said is we haven't scoured anything that says this is not a viable way to get to a scalable automated cell reduction. And we think we see a path through to that.

Speaker 3

We're making a few changes to make sure that we debottleneck and unblock that path. We continue to have and I think we've spoken about before, Delivery of sales in an automated way at the CPPS Company prior number 1. And along with Selected members of my leadership team start every day 9 am with a daily follow-up call to make sure we remove all blocks from the path in front of that. We have all fair battery talent now engaged at the CGP. We might have been We're diverse in terms of our priorities previously.

Speaker 3

We have key vendors like MPAC, Uniforem, others on-site. The MPAC is running double shifts We have a very good threshold for getting for help on-site and when and if we discover that we need it. We're aligning with other MSO licensees. We have people on-site with several of them and making sure we learn the most maximum from the other people who have gone before us and that we share experience with those who are traveling at the same rate of speed as we do. And we've also involved both the customers and vendors directly into our daily stand up follow-up meeting here.

Speaker 3

So through all of this, we've created a lot more transparency. We've got very few of the runway ahead of us. And We are solving problems every day, but at the same time we're getting, as I said, closer to the more difficult part. And that's what's extend as we call the extension of the timeline here. If we had a conclusion here that said, This is not going to be viable.

Speaker 3

We would of course have shared it. And I'd say, vape on the input of our Technology Advisory Board and some discussions that we're now conducting continuously. If anything, we're strengthening our belief that there is a very interesting technology path ahead of us,

Speaker 5

Thanks, Berger. And just to follow-up on the runway discussion.

Speaker 6

I was

Speaker 5

going to ask whether the 2 year plus runway began at the end of the Q3 or the end of the Q4, but I think Oscar, your comments about getting into 2026 Answers that question, just confirming that.

Speaker 2

Yes, yes, I mean thanks. Oscar, also

Speaker 5

I want to know whether that 2 year plus bakes in a minimum cash level to run the business for payroll expenses, etcetera or whether that was a mathematical down to near 0 cash flow. Sorry for the housekeeping there, but just wanted to assume whether you Add a minimum cash in there and if so, what that would be? And then what specific cost cuts are required? You alluded to in the release that You would take in addition to pausing the CapEx subject to project financing or funding, What OpEx cuts are being considered and are there any upfront costs related to those cuts? So I'm trying to get at Oscar is, Is the 2 year plus runway a really conservative base case, something you really have line of sight to And that's achievable and is that base case or is it kind of more of a stretch goal?

Speaker 5

Thanks.

Speaker 2

Great questions, Adam. Thank you. So a couple of things. So just reconfirming, yes, the runway $250,000,000 starts at the end of 2023. Now runway extends into 2026.

Speaker 2

Amount of cash you needed just to hold on the balance sheet to sort of run the business like the working capital is very low. So that's not significant. Just responding to from a burn rate perspective, we'll have the quarterly Earn rate well under $30,000,000 a quarter. Also keep in mind when you look at 2023 and our cash spending, The largest component of that was the big Arctic that we're pausing now until we get any kind of new financing related to that. So that's a significant piece of the puzzle.

Speaker 2

But clearly, that's a more focused level of activity with the CQP and then Giga America Development and the ones that Burge mentioned. That requires a different organization. So we are looking at the organizational structure. We've made a lot of progress So we're going through that process there. So this is not an aspirational goal.

Speaker 2

This burn rate reduction is happening Right now. And so we're pretty confident, we're very confident in that.

Speaker 3

I think we're not providing numbers on headcount today, Adam. But the The priorities that the company was pursuing up until quite recently were more than what we have now. We're laser focused now on delivering sales and expanding runway and And that's going to allow us to take down it down quite dramatically without impacting our key priorities. So that's what we're doing. We've had all hands meetings across the company today.

Speaker 3

There's Perhaps unfamiliar territory from somebody, but there's a fairly straightforward process of running production in force processes in Norway where we have most of our staff to a well advanced and executing on those and of course we love the regulation. So this is, as Alper said,

Speaker 5

Thanks, Berger and thanks, Oscar. Just one last follow-up just to clarify on My second question, I'll finish the questions here. The time to get to $30,000,000 per quarter burn rate. Would that be is that something that would take a couple of quarters to settle on given some perhaps some adjustments to get there, including some one time I didn't know if you had an idea of when a $30,000,000 burn rate would be achievable within presumably sometime in 2024, but I didn't know if it was the first half was achievable to get there. Thanks.

Speaker 2

Thank you. And so reemphasizing, the burn rate will be below $30,000,000 a quarter and it will be as of We will take a small kind of single digit one time charge related to severance. In fact, you'll see this out of the box in Q1.

Speaker 6

All right.

Speaker 2

I'm going to be very clear, January 1, Q1.

Operator

All right. Great. Your next question comes from the line of Tyler Matteo with BTIG. Tyler, please go ahead.

Speaker 6

Yes, good morning, everyone. Thanks for taking the time and the questions. I wanted to follow-up on the some of the comments in the prepared remarks related to the CQP and the plans to prevent further delays that you highlighted, some comments on partners and vendors. I'm just curious, how are you thinking about Maybe leveraging more of your partners and vendors to ensure or at least kind of Really work through some of the challenges of the CQP that's undergoing right now. Just how can you really leverage Some of those partnerships as you go into 2024.

Speaker 6

Willy, any other color there?

Speaker 3

Yes, it may be too much sausage making, but we have, as I said, every morning we get together and look at the critical path progress versus 24 hours ago. And we have key partners and vendors involved once or twice a week, but every week. On those calls, we also go through detailed plans on the part of the vendors, detailed expectations on the part of the customers. And we have the The subject matter experts from all three sides engaged in problem solving where we identify our roadblocks and to remove barriers for the team on the ground. And this is it's really creating that full right to left transparency.

Speaker 3

We also share this throughout the facility. So there's a lot more eyeballs on potential issues and also solutions as we go than we've had previously. So quite a bit of changes in operating model and all of them related to unblocking and debottlenecking progress towards 1st sales.

Speaker 6

Okay, great. And then just at a higher level here, kind of given Some of the delays at the CQP. I mean, does this change how you think about Maybe ESS versus EV realizing that ESS was always the core near term approach. But I mean, does this dynamic now change given the current state of play or nacell how?

Speaker 3

I think the Semi solar technology was always a very promising technology as it relates to producing And thereby achieving the electrochemical properties you want for particular applications like ESS. To financing our conviction that this is going to be a very good market for the technology we're advancing and strengthened. And we're just going to keep executing towards that.

Speaker 6

Okay, great. Thank you for the time, but I really appreciate it. I'll turn it back to the queue.

Operator

Great. Thank you so much, Tyler. Your next question comes from the line of Gabe Daoud with TD Cowen. Gabe, go ahead.

Speaker 7

Thanks, everyone. Thanks for all the great detail this morning. I was hoping we could maybe level set Giga America again. So Going back to the original plans, could you just remind us what the capacity targets are for both tracks? And then any color you can give?

Speaker 7

I know a lot has to kind of go right from now until then, but any updated thoughts now on start of production from Gig America. I think the fast track plan was 2.5 gigawatt hour capacity by this Early starting production by the summer of 'twenty five. So maybe just level set and give us a little bit of an update on the initiatives that like Dig America?

Speaker 4

Yes. So, yes, it's Jeremy here. Gabe, thanks for the question. Some of this is still being worked as we're refreshing the business model, but let me give you some thoughts. So on track 1, as it relates to the 24 ms technology, Because we are in the DOE process, the timeline to sort of closing the financing, the equity will likely line up with the DOE process.

Speaker 4

And so that will kind of dictate when we can close financing, which then allows us to order the long lead equipment and then that will Tate, the start of production. So as we think about the DOE process for the 24 implant, That's likely to take us through most of 2024. We hope to be able to get a conditional commitment before the end of the year. If we're able to do that, we believe the equity financing will line up quite well with that. We will of course feel good about where we're at in the CQP and be able to move forward with ordering long lead equipment and then that puts us in a start of production late 2026.

Speaker 4

From a capacity standpoint, again, still sort of working on this. It has somewhat to do with How we end up designing the process, which of course will be educated again coming out of the CQP performance. So, My guess is you're probably looking at anywhere from 15 to 20 gigawatt hours of capacity in that kind of a plant, but of course, That will be a bit TBD still. So we should be able to report more on that, as we get into the early part of 2024. On the second track, Timing is a little bit more certain because of course you have, as Berger said, you don't have any sort of technology risk.

Speaker 4

But we are working with multiple partners to try to lock down terms around licensing the technology and Assuming we can do that in a short term period, it's going to allow us to likely beat that start the production timing I just mentioned for Track 1, with the Track 2 plan. So and then really No way to really comment on capacity yet on track to that's still being negotiated obviously with the potential license partners. So more to come on

Speaker 7

Thanks, Jeremy. That's great color and super helpful. Maybe as a follow-up then, can you Talk a little bit about what you may be looking for in a tech partner. I'd imagine it's someone with LFP CHOPS, if you will, just considering the market focus on energy storage and anything else that maybe you're looking for in a tech partner? And then maybe specific to Nidec, could you pivot and could track 2 or Phase 2, I guess, be the sole source of supply for Nidec, like Nidec doesn't necessarily care if it's 24 ms Technology, is that correct?

Speaker 4

Yes. So let me answer your first question first. As far as technology partner. I do think we want to focus around LFP and I also think we want to continue to focus on the ESS market. As Berger mentioned, we're excited about that market.

Speaker 4

We're excited about the growth opportunities there. And frankly, the speed to validation with customers. First. And so that's important.

Speaker 6

So

Speaker 4

I think that would be the way I would characterize our potential conventional technology partners. As it relates to NEDEC, the one difference here for them as our module impact partner is the 24 ms cell design is different than a conventional cell design. So, it will be 2 different module designs that go with that. So, We're working very closely with them on both Track 1 and Track 2. And so the way we would envision the relationship moving forward is to be as transparent as possible on what cell design looks like, so they can follow with module design and get us into A DC block product, which we think the market desires.

Speaker 7

Thanks, Jeremy. Thanks, guys.

Speaker 3

Thanks, Kim.

Operator

Thank you. Your next question come from the line of Alex Grafel. Alex, go ahead.

Speaker 8

Hey, guys. Thanks for taking my questions. I'm curious With the sort of rejiggering of plans here towards Giga America specifically, how are you guys Thinking about the off take environment for ESS moving forward, it seems like almost when you came out, we were Kind of in one very panic environment. Today, we're hearing something really different from buyers. They're seeing rather steep price cuts In ESS, they're much more confident on supply, I mean, specifically to the U.

Speaker 8

S. So relative to sort of either Track 1 or Track My understanding is you do need to show some off take to get through the deal alone process. How are you thinking about the contracting environment and EDSS and sort of like what underpins your excitement looking at it today versus say 2 years ago? Thanks.

Speaker 4

Yes. Thanks for the question, Alex. I'll take a stab at that and then if anybody wants to join in, feel free. You know, supply and demand drives price, right? And so yes, it will be a cyclical market.

Speaker 4

We know that. We still believe that the ESS market, the growth potential is strong. And so we do feel like there will be periods where there are significant margin and there'll be periods where there are tighter margin. And that's why relying on the competitive advantage that we can build into both our scale and our technology partners is going to be helpful as we survive the cyclical nature of what will be a commodity type market. So no concerns about today's market.

Speaker 4

Feel very strongly still about ESS growth. As it relates to offtake, Yes, there will still need to be off take in either track, no question, to secure the financing that we need. And we feel pretty good actually about many of the relationships that we've established, not just with Nadek, but with others as well. And we hope as we kind of continue into 2024 and we start to line up, the alternatives with both tracks that You'll see actually, this isn't a hope. We believe you will start to see some additional offtake announcements happen.

Speaker 3

Yes, yes, just for clarity, we haven't heard any objections when it comes to the LTSAs Moving volumes between Gig Arctic and Gigamerica. And the other note I'll make is The notion of a Western technology based ESS solution has a lot of enthusiasm In the market, we're getting very strong responses in trade shows and elsewhere on this concept. So coming with a technologically de risk solution and a geopolitical de risk solution seems like a really winning combination.

Speaker 8

Got it. You already answered part of my follow-up as As far as the transferability of offtake across the Atlantic. But maybe a follow on, right, Birger, you've alluded to So the technology versus the geopolitical risk. Obviously, there are some large players today that are licensing battery technology from various parts of the world that's been contentious in certain cases. I'm curious how you think about that sort of track to what are you looking to see again, you just mentioned sort of a U.

Speaker 8

S. Platform and I think that there's sort of consequences or ramifications that go along with that. How are you thinking about that app Specifically relative to some of the things you've already seen as far as the U. S. Reshoring, but also not necessarily having these core technical capacities as others do in the rest of the world.

Speaker 8

Thanks.

Speaker 3

That kind of goes to the conclusion again, right? Because In an environment where you get a lot stronger, a lot stricter restrictions on the origin of your IP or your process or the ownership of gas the licensor. Clearly, the 24 ms solid semi solid platform is going to be Significantly advantaged and conversely an environment that sort of doesn't go farther in that direction derisk through a high maturity, dimensional of T solution. It's going to be advantage. So I think we can to both sides of this argument.

Speaker 3

That said, we're of course paying very close attention to it. We're spending time in BC to understand What might be or might be percolating and staying close to the people who might be providing non diluted funding for us to ensure That we have a good picture of

Speaker 8

the risks. Got it. Makes sense. If I could just sneak a quick follow-up, just on the effective, I guess, capital plan for Gigarctic. I think you guys talked in the past about your ability to cold stack.

Speaker 8

Just wondering if there's any ongoing Beyond capital that we should be aware of with where the plan fits. Currently, I understand that capital could resume With some financing coming in the door, but just curious if there's any like additional costs, right, that we should be aware of there? Thanks.

Speaker 3

We see the cost of keeping the Giga Arctic option alive and possible to hot start as it were some of between $3,000,000 $4,000,000 a year. So not significant in our runway respective as we've discussed it.

Speaker 8

Got it. Thanks. That's super clear. Take the rest, Tom.

Speaker 1

Thanks Alex.

Operator

Great. Thank you. Your next question comes from the line of Jose Azumendi. Jose, please go ahead.

Speaker 9

Thank you very much. I want to come back please to Slide 6. Can you maybe just provide a few more details with regards to what's going on, on the ground? Like what are the changes you're doing to assist you on the slide further prevent further delays. And can you elaborate a little bit more on this dedicated Technology Advisory Board?

Speaker 9

Thank you very

Speaker 2

much.

Speaker 3

Yes. So, our Technology Advisory Board As chaired by our Board member, Doctor. Dan Stangard out of Columbia University. And just this last month Spend time on the CQP with our of course, our technology team as well. And As I alluded to previously, we're also strengthening and we'll probably we will continue to strengthen our own in house technology muscle to the to ensure that we build our own ability to scale not only in this permutation of semi solid, but also in the So that's what's going to bear out our confidence that the semi solid platform is the right bet Western Hemisphere based set of IP for battery cell production.

Speaker 3

And in terms of what we're doing every day, I guess, Probably could invite you into our morning meetings and you'd see all the sausage making, but I'm not sure how that would play. Rest assured, this is taking up the attention span Of the key people in Freyr. We're all on this on a daily, if not hourly basis.

Speaker 9

Thank you.

Speaker 7

So, there.

Operator

Just as a reminder sorry, go

Speaker 1

ahead. Go ahead, Jessica.

Operator

Okay. There is no further questions in the queue. So with that, I will turn the call back over to Jeff Siddle, VP of Investor Relations. Jeff, go ahead.

Speaker 1

Thank you, Jessica. Thank you all for your time today. Please follow-up with us. I know we have additional questions and we will get to all of them. So reach out to me and we'll put some time on the calendar and then we forward to seeing a number of you in person on the road and virtually over the next several weeks.

Speaker 1

Thanks for your time and this will conclude the call.

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Earnings Conference Call
FREYR Battery Q3 2023
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