QuantumScape Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
April 26, 2023

Key Takeaways

  • Completion of customer prototype testing for 24-layer automotive and pressure-free single-layer consumer electronics cells demonstrated fast-charge performance, high coulombic efficiency, and <1% capacity loss over 100 cycles, validating core solid-state battery technology.
  • 2-layer unit cells with 60% higher cathode loading achieved strong cycling at high 1-hour charge/discharge rates, delivering ~5C discharge at 25°C and 8C at 45°C while accessing ~50% of nominal capacity.
  • QuantumScape set a dual-purpose target for its first commercial product: a 24-layer ~5 Ah prismatic cell compatible with automotive and consumer electronics, leveraging existing prototypes to minimize development risk and accelerate time-to-market.
  • Separator production scale-up is underway with a two-stage fast process: first stage to triple throughput this year using existing equipment, and second stage prototyping new tools for higher-volume output by end of 2025.
  • Q1 results showed a GAAP net loss of $105 M, cash operating expenses of $63 M, reaffirmed full-year OpEx ($225–275 M) and CapEx ($100–150 M) guidance, and maintained over $1 B in liquidity to fund continued development.
AI Generated. May Contain Errors.
Earnings Conference Call
QuantumScape Q1 2023
00:00 / 00:00

There are 10 speakers on the call.

Operator

Day, and welcome to QuantumScape's First Quarter 2023 Earnings Conference Call. John Sager, QuantumScape's Vice President and Capital Markets and FP and A, you may begin your conference.

Speaker 1

Thank you, operator. Good afternoon and thank you to everyone for joining QuantumScape's Q1 2023 earnings call. Capital Markets. To supplement today's discussion, please go to our IR website at ir.quantumscape.com to view our shareholder letter. Before we begin, I want to call your attention to the Safe Harbor provision for forward looking statements that is posted on our website as part of our quarterly update.

Speaker 1

Forward looking statements generally relate to future events, future technology progress or future financial or operating performance. Capital Markets. Our expectations and beliefs regarding these matters may not materialize. Actual results and financial periods are subject to risks and uncertainties that could cause actual results to differ materially from those projected. There are risk factors that may cause actual results to differ materially from the content of our forward looking statements for the reasons that we cite in our shareholder letter, Form 10 ks and other SEC filings, including uncertainties posed by the difficulty in predicting future outcomes.

Speaker 1

Joining us today will be QuantumScape's Co Founder, CEO and Chairman, Jagdeep Seni and our CFO, Kevin Hetrick. Jagdeep will provide a strategic update on the business and then Kevin will cover the financial results and our outlook in more detail. With that, I'd like to turn the call over to Jagdeep.

Speaker 2

Thank you, John. I'd like to begin with an update on customer prototype testing. As you may recall, last year we shipped a variety of prototype cells for and Customer Electronics customers, including 24 layer A Zeros to the automotive sector and 0 externally applied pressure single layer cells to the consumer electronics sector. We're happy to report today The planned testing of 24 layer A0 prototype cells at 1 automotive customer is now complete. And in line with what we reported in our last shareholder letter, Most sales performed very well, leading performance targets on fast charge and generally showing good cycling capacity retention and high columbic efficiency with capacity loss of less than 1% for 100 cycles.

Speaker 2

However, we have work to do to improve reliability as we transition from prototype to Commercial Product. Similarly, on the consumer electronics front, we can report the customer testing of 0 externally applied Pressure Single Layer Prototype Cells is also complete with the cells generally performing very well on a broad range of electrical performance and characterization tests, including cycle life, resistance, storage life and tests at multiple rates and temperatures. And hereto, the cells displayed less than 1% capacity loss for 100 cycles. So as I mentioned, we have work to do on reliability. The results of these independent tests provide validation of what we've seen in our own labs.

Speaker 2

We continue to see consumer electronics as an attractive market and our 0 externally applied pressure capability gives us optionality to pursue consumer electronics alongside our automotive development efforts as we continue to engage with some of the largest consumer electronics players in the world. On the reliability front, We've already identified and begun executing a number of initiatives to improve the quality and uniformity of our materials and processes, which we believe will lead to better reliability as we continue to get closer to a commercial product. As an example, a material used during the separator heat treatment step was identified as a source of particle contamination and we've begun the transition to a different material and are already seeing encouraging results in reducing particle counts and improving quality and consistency. Next, I'd like to give an update on our technical development. On our last earnings call, we laid out the key goals we've targeted for 2023, which are designed to facilitate our transition from technology demonstration to Commercial Product.

Speaker 2

One of these goals was to introduce a higher cathode loading, which contributes to better energy density. There are 2 main challenges with making higher loading cathodes. The first is to manufacture these cathodes with the necessary quality and consistency, while maintaining the ability to deliver sufficient power. The second is to maintain performance even at the higher current densities that go along with higher cathode loading, approximately 60% higher than the previous cathodes. We're therefore excited to report We've already made and tested 2 layer unit cells with the higher loading cathodes and in our shown letter, we published data showing very good cycling and Catheterization at high 1 hour average charge discharge rates, consistent with the data we previously published from cells with lower loading cathodes.

Speaker 2

In addition, we also showed data demonstrating sustained discharge rates of approximately 5C at 25 degrees Celsius and as high as 8C at 45 degrees Celsius, while still accessing approximately 50% of the battery's nominal capacity. When it comes to power performance, We believe an important benefit of our solid state lithium metal system is the ability to deliver high rates of power even in a high energy cell design, a combination that lends itself well to high performance applications. Now I'd like to discuss our progress on product development. First, a bit of background on the product side. As a result of our customer engagement across the automotive and consumer electronics sectors, We believe there's a significant opportunity for a cell that combines high energy density and high power.

Speaker 2

To enable a commercial Cat Products that can serve either consumer or automotive applications on the shortest timetable, we're targeting a single track dual purpose design that we believe presents an attractive value proposition for both automotive and consumer electronics applications. We now have a target for our 1st commercial product, a 24 near cell with a capacity of approximately 5 amp hours. This is in a similar capacity range as the 2,170 battery used in several leading EVs. We believe this initial product design makes the most efficient use of our resources and represents the fastest path to market, while delivering the product that presents a compelling combination of energy and power. Importantly, this design uses the same layer count and similar separator area as a 24 layer 80 0 prototype cells that we've already shipped to customers, derisking these aspects of the product development process.

Speaker 2

This allows us to focus on integrating the key remaining functionality, including a higher loading cathode and more efficient packaging as well as improved reliability, all key goals we set up for 2023. We also expect this first product to take advantage of our new fast separator production process. Now that we have line of sight to this first commercial product, We can begin finalizing equipment designs for upgraded higher volume production on our consolidated QS0 prepilot line. As a reminder, our current production plan for QS0 is based on our new disruptively faster separator production process. We currently plan for deployment of this fast process in 2 stages.

Speaker 2

The first stage targeted for later this year is designed to triple throughput using similar equipment to our existing line. The 2nd stage targets even higher throughput to support higher volume QSR production and requires new equipment. We can now report that the installation of our 1st stage equipment is already underway and we aim to complete installation, qualified the equipment and deploy this 1st stage into initial production this year. We're also already operating prototype versions of our 2nd stage equipment and are working towards final equipment specification. I'd like to close with a word about the big picture Strategic Outlook for the company.

Speaker 2

2023 is about turning the corner from technology demonstration toward a commercial product. This represents a phased transition, both in the history of our company and in the nature of our development work. As always, We emphasize that continuing to improve quality, consistency and throughput of our manufacturing processes and increasing reliability of finished cells is not a trivial task. Requires an ongoing and systematic process of identifying and addressing issues, working with material and equipment suppliers and iterating through new processes and cell designs. Yet facing the challenges of scaling up is also a rare privilege.

Speaker 2

Historically, many emerging battery technologies fail well before this point, often because the basic electrochemical system does not have the intrinsic capabilities necessary to meet customer requirements. Therefore, it's always motivating to see results from customer testing that validate the core capabilities of our technology. Based on results like these, we believe it's possible to produce a commercial product using our solid state lithium metal platform that simultaneously achieves high energy density and high power capability, starting with a 24 layer, approximately 5 amp hour cell. We believe this compelling combination is made possible by the intrinsic capability of our technology. Though we have much more work to do as we progress through our roadmap, we believe the work we've done so far has established a solid foundation and that we're closer than ever to our 1st generation solid state battery product.

Speaker 2

Thank you for your support and we look forward to reporting on our continued progress next quarter. With that, I'll hand things over to Kevin.

Speaker 3

Thank you, J. Geet. In the Q1, our GAAP operating expenses were 110,000,000 Our GAAP net loss was $105,000,000 Cash operating expenses defined as operating expenses less stock based compensation and depreciation and Cat, were $63,000,000 This level of spend was in line with our expectations entering the quarter. For full year 2023, We reiterate our guidance for cash operating expenses to be between $225,000,000 275,000,000 CapEx in the Q1 was approximately $28,000,000 First quarter CapEx was primarily directed towards Facility spend for our consolidated QS0 preproduction line. We also procured equipment for our FAST separator production process and self safety test lab.

Speaker 3

For the remainder of the year, our CapEx will primarily go towards facility work and equipment for QS0. We reiterate our guidance for full year 2023 CapEx to be between $100,000,000 $150,000,000 We ended Q1 with just over $1,000,000,000 in liquidity. We continue to make progress on ongoing cost savings initiatives and resource optimization. We reiterate our cash runway is forecast to and Capital Markets activity, including under the at the market perspective and Capital One, which will further extend this cash runway. With that, I'll pass it over to you, John.

Speaker 1

Thanks, Kevin. We'll begin today's Q and A portion with a few questions we've received from investors or that I believe investors would be interested in. Jagmeet, there's a perception that some players in the industry are moving to larger cell formats. Why have you chosen 24 layers or 5 amp hours as the size of your first commercial cell?

Speaker 2

Yes. So we've seen OEM interest in both large and small cells, but what everyone is interested in is energy density. Over time, we plan to make both small and large cells. But for our first product, we want to minimize time to market. We believe our 24 layer 5 amp hour design has the potential to deliver energy densities and power capability higher than cells used in many leading EVs today.

Speaker 2

So we think this design already offers a compelling value proposition. By using the same layer count and similar separator area of the A0 samples that we've already shipped, we believe we can minimize the amount of additional work required to get to market. And finally, this product also provides us the flexibility to serve the consumer electronics sector.

Speaker 3

Great.

Speaker 1

Thanks for that helpful context. There's been a number of announcements in recent months regarding new battery technologies, including 500 watt hours per kilogram announcements from some players as well as sodium ion batteries. Some of those announcements affect your market outlook. So we're pleased

Speaker 2

to see industry players recognize the importance of higher energy densities and new chemistries to deliver this capability. Of the 2 recent announcements I'm familiar with, we've yet to see any data showing performance on high rate long cycle life room temperature tests. And of course, without this data, it's very hard to evaluate any claims. Regarding sodium ion, Some of the figures we've seen suggest it has a very low energy density. So it's likely unsuitable for high value automotive applications.

Speaker 2

In addition, note that if you change the ion that's transporting charge through the cell from lithium to something else, you're changing the entire stack, including the cathode, the anode and the electrolyte potentially introducing unknown or unexpected materials interactions in addition to requiring an entirely new supply chain. We don't know what the specific material supply chain is for this class of battery.

Speaker 1

Thanks, Ajit. Kevin, one question for you. Can you talk to how the company is navigating the continuing macroeconomic uncertainty and the banking systems strain that we witnessed in the quarter?

Speaker 3

Yes, happy to. Four points I'd like to make.

Speaker 4

First, I'd like to highlight the strength

Speaker 3

of our balance sheet. We ended the quarter with just over $1,000,000,000 in liquidity. We reiterated guidance in our shareholder letter that we continue to see our cash runway and Cat. Additionally, concurrently with the filing of our annual report at the end of February, We filed a $400,000,000 at the market prospective supplement. Any proceeds from this would further extend our cash runway.

Speaker 3

2nd, we remain prudent on the use of funds. We continue to make progress against a number of internal cost saving initiatives focusing on both OpEx and CapEx. 3rd, our investment policy prioritizes the preservation of principal and liquidity. We have invested our treasury funds in what we view as a conservative manner, both in terms of duration, less than 18 months weighted average maturity and Credit Quality. Greater than 75% of our portfolio is invested in U.

Speaker 3

S. Government obligations and AAA rated money market funds. Finally, regarding institutional relationships, we use multiple banks for treasury management and following SBV's insolvency and added additional operating relationships as well.

Speaker 1

Thanks, Kevin. Jagdeep, turning back to you. Can you give investors a sense for the level of quality QuantumScape needs to make the system work with higher levels of reliability?

Speaker 2

Yes. As we said before, we believe reliability is a function of defect density and defect density is a function of quality and consistency, which are in turn functions of cleanliness and process control. As we move to more automated tools, we tend to see improvements in all of these fronts. To give you some context, some industries such as semiconductor and the magnetic spinning disk storage industries require very high levels of cleanliness and process control. For example, the magnetic storage industry, a very high volume industry, which ships millions of hard disk drives every year has heads that float nanometers above the surface of the platters, which are spinning at 1,000 of RPM.

Speaker 2

This requires cleanliness on the order of nanometers. By contrast, we believe we require plenty less on the order of microns, a 1000 times less stringent. As we continue moving to more automated tools and continue to identify and resolve sources of defects, we believe we'll be able to further improve our reliability.

Speaker 1

Okay. Thanks so much, guys. We're now ready to begin the live portion of today's call. Operator, please open up the line for questions.

Operator

The first question is from the line of Jordan Levy with Truist. Your line is now open.

Speaker 5

Afternoon, all, and congrats on the design decisions. Nice next step for you all. Maybe to start, I just wanted to see if you could help us benchmark the cell design you're targeting versus some of the sales available in the market today, maybe the 2,170 or 4,860 in terms of what EV battery and Cat. Metrics could theoretically look like down the line once you get things scaled up?

Speaker 2

Yes, absolutely. So as we mentioned in our letter, the 2,170 that we're familiar with has an energy density somewhere in the low 700s in terms of watt hours per liter. And we believe that even with our 24 layer design, with the same area separators or similar area separators to what we've already shipped with our A Zeros, We can exceed that number. I think the other thing to keep in mind is that we believe not only can we exceed those energy densities, But we believe that we can do that while maintaining high levels of power. And that combination we think is relatively unique.

Speaker 2

And so we think there's a compelling value proposition with that 24 layer cell, 5 amp hours, which really allows us to minimize the amount of additional work that would be required if we were to change the layer count or change the area dramatically or other things like that, which in turn then allows us to basically derisk those parts of the development process and get to market as quickly as possible.

Speaker 5

Thanks for that, Jack, Deep. And then maybe a separate question. If you could just give us a little more detail on the process and steps for Scaling Up the Next Production Phase of QSR, I think you said 3 times the capacity. And what remains to be done before bringing that faster process line online and then subsequently what the steps are to get to that next expansion following that?

Speaker 2

Absolutely. Yes, this is an important question and that's actually an area we're pretty excited about. So As you might recall, we are already using a continuous flow process for our separator production for the films themselves. And what we've been able to do is come up with a new process that we think is disruptively better. That process can take tools that are essentially Very similar to the equipment we already have that we're using today.

Speaker 2

And as we mentioned, tripled the throughput. That particular That's the first stage of this new process. That first stage, we are in the process of deploying right now. The tools are in house. They're being configured, and we currently plan to have production off of that line starting this year.

Speaker 2

Now the exciting thing about this new process though is that there is a second stage where we can take the same General Principal that we're using for this process and scale it up to even higher throughputs. And now to get those high throughputs, There is new equipment that's required and we're currently in the process of specifying the tool and process specs for that new equipment. That equipment we expect will be operational in house and operational before the end of 2025 in time for our higher volume B Sample production.

Speaker 5

Thanks so much for taking my questions.

Speaker 2

Absolutely. Thank you.

Operator

Thank you for your question. The next question is from the line of Winnie Dong with Deutsche Bank. Your line is now open.

Speaker 6

Hi, thank you so much. My first question is with the 24 layer and A0 prototype now complete with 1 auto customer. Congrats on that. Like what's sort of like the next step there in terms of completing testing with the other customers before you can transition to the next phase, which is the sample? And then how far are you from completing this testing with the rest of OEM?

Speaker 2

Yes. So, we are pleased, as we Mentioned in the letter with the results of the testing, we pointed out that the preliminary efficiency, the capacity retention, and Fast Charge Test all went well. Obviously, we pointed out that there's more to do on reliability. No one expects A Sample prototype to be as reliable as a production series commercial shipping part. But overall, we're quite pleased with the results.

Speaker 2

From here what we are working on is taking the key items we mentioned as our goals in our last serial loader. So the higher loading cathode, the more efficient packaging of the sample, the new films coming off our higher throughput film production line, Integrating all those all that functionality into our samples and then obviously working on the liability. So those will be the those that new functionality will be the basis of subsequent deliveries to our customers. And we expect to be working on that through when we have the B sample. We expect to have the as we said before, lower volume B samples off of the lower throughput production lines sometime next year in 2024.

Speaker 2

And then the first B sample off of the higher throughput production lines before the 25.

Speaker 6

Got it. That's very helpful. And then second question is for Kevin. I was wondering if you can sort of provide additional color on the internal cost initiatives that you were doing to in terms of CapEx and OpEx? Thank you.

Speaker 4

Thank you, Eddie. Yes, I would say that we've continued to make progress in the quarter both on OpEx and CapEx areas, Not so much progress that we would change our guidance, but it is absolutely an area where our FP and A team is actively working with Our cost center donors, there's a real commitment to being prudent with the strong balance sheet that we have and that isn't lost on any of the Leaders on the

Speaker 6

team. That's helpful. Thank you so much.

Operator

And question is from the line of Chris Snyder with UBS. Your line is now open.

Speaker 7

Thank you. And appreciate all the updates, this afternoon. So again on the 24 layer 5 amp hour cell, you guys said it could be used for both auto and Consumer. So understand that there's better synergies with that and it would be maybe the fastest path to market. Does this suggest that the company is no longer pursuing the plan of scaling the cell up to kind of several dozen layers?

Speaker 7

Or is that still in the plans, it's just being kind of pushed right?

Speaker 2

No. As we've mentioned, we over time plan to make both large and small cells. And there's nothing inherent about our technology that causes us to not be able to do that. We just think that there's a lot of value to us, to our investors, to our customers of getting a product to market as quickly as possible. And so our goal here has been to say, What can we do to take what we've already shipped, which of course is the A0 sample with 24 layers in a certain area and commercialize that.

Speaker 2

And so what this first shipment does for us is it allows us to leverage the 24 layer count that we've already done, Leverage the leverage area that's similar to what we've already shipped and focus just on the things that I mentioned earlier that are part of our 2023 goals. So Add to that cell, the higher loading cathode, which increases energy density. Add to that cell more efficient packaging, which also increases energy density. Add to that, so the new films coming off of the more scalable film production line, which increases the capacity improvement of the Permian line, and then couple that with the improvements we're making on reliability. And those things combined, we believe, get us to something that looks a lot more like a commercial product and does that in the fastest possible way.

Speaker 2

The fact that that product, given the Capacity that it has and the energy density that it has appeals to both the automotive sector and the consumer sector is In some ways, a bonus, because we can now take that same product and have a single track dual purpose design. So recall that the The 2170s that are used in obviously many of the best selling EVs today are about have about approximately 4 to 5 amp hours of capacity. And what we're talking about is about 5 amp hours of capacity. So it's in the same Capacity range as today's 2170s, which obviously are high volume cells. And the energy density that we think we can get out of these 24.5 amp hour cells, we think is higher than today's 2170s.

Speaker 2

And then that's Not even taking into account the fact that we think we need a power density. So when you couple all those things together, Our conclusion is that we have a really compelling first product that can serve multiple markets, that can be better than what is the alternatives that are available and that can really optimize time to market without requiring additional development. We for sure plan to do larger sales over time. This is simply a question of how we can get to market as quickly as possible.

Speaker 7

Thank you for all that color. Really appreciate it. Does the kind of the focus on the 24 layer 5 amp hour cells, Does that have any impact or kind of on your existing commercial agreements with auto OEMs, who are maybe kind of

Speaker 1

I don't know if

Speaker 7

there is an expectation that these would be kind of larger cells at that when those agreements are signed? Thank you.

Speaker 2

Yes. So I think we're working with all of the players that we have already got agreements with and we're discussing with them the best bit of this design with the various programs that they have in their lineup. And again because 5 amp hour cells are already used in high volume automotive applications today, We believe there is going to be no shortage of demand for this kind of cell that offers the combination of energy density and power density in this capacity range. And then in the fullness of time, we offer a broader portfolio including in both large and larger and small cells in order to address the particular Design approach that PG OEM ends up choosing.

Operator

Thank you.

Speaker 4

Absolutely.

Operator

Thank you for your question. The next question is from the line of Ben Kallo with Baird. Your line is now open.

Speaker 8

Hey, Jagdeep. Hey, Kevin. Thank you.

Speaker 1

Hey, Ben.

Speaker 8

Have you guys just really, Kevin, have you done anything with ATM? I'm sorry if I missed this before.

Speaker 4

Ben, if I correct, your question was regarding use of the ATM in the quarter?

Speaker 8

Right.

Speaker 4

No, we did not use the ATM facility in this quarter.

Speaker 8

And And then, Jajib, just and I know this is all complicated to me at least, but and Cat. The different form factors, I think this question was asked before, but like how do you think about going from sell to going into a product and the timeline that we can see developments there. I just need, this is consumer electronics versus automotive going from cell to a pack. Like how should we think it was the milestones?

Speaker 2

Yes. So I think On the automotive side, there's a relatively well laid out methodology that they use, which is you go from an A sample to a B sample and so on to higher levels of maturity. In addition to maturity level, B samples typically have higher volumes and they use those higher volumes to make packs. Then you use those packs to make actual test cars and then finally to qualify those vehicles and you have a serious production release. So those are all activities that we were working on with our various OEM partners.

Speaker 2

On the consumer side, it's a simpler process, Because there is no pack, so to speak. The cell that you are building is going to go into a device by itself. And the nice thing about this 5 amp hour design is that corresponds to roughly 20 watt hours. And 20 watt hours is On the higher end of what you would see even in a relatively large new model phone. So, if we were to do anything that's different in terms of that design for a consumer device, It would likely be making it somewhat smaller.

Speaker 2

And of course, that's always easier to make something smaller because everything gets simpler and easier. So I think that those are the differences in terms of the process flows for how the process to market works. The advantage of consumer of course is that Not only is it a simpler process that I just mentioned to you, there's no pack design to worry about. But the requirements at the cell level Are also in some ways a lower bar. So you don't need the same rates of power.

Speaker 2

So the seat rates are lower. You don't need Super High Power to run a phone versus a car. You also don't need the same temperature performance. Cars need to be weighted down to in Maybe negative 20 and negative 30 degrees, whereas phones typically don't need to run that operate at that lower temperature. And the cycle life are very different.

Speaker 2

Cars typically will need to run for 100 of 1000 of miles or 10 plus years, whereas no phone and Design for 10 years. I wish they were, but typically the phones are designed to be obsolete within a few years. So all that makes it easier for the consumer application, if you will. So which is why we refer to this as Single track dual purpose design. We're doing one design with this 24 air cell, 5 amp hours, but we think it applies quite well to both consumer and automotive in the sense that there are applications, there are examples of leading in Products in both sectors that you sell with capacities in that range?

Speaker 8

Thank you. In the past, you've talked about compatibility with current manufacturing, We continue to see more and more capacity announcement at least like most every day in the United States. So do you think that that scale diminishes what you can offer to the automotive industry? I mean, Cell and PAC, whomever you want to pick, over the next 4 or 5 years as you get to correlation or can you just remind us why you'll still be ahead of the curve? Thank you.

Speaker 2

Yes. Just to make sure I answered the question then, are you asking whether the new battery production capacity?

Speaker 8

Whomever, I mean, like 35 gigawatt hours here and there and here and there. So I'm wondering, you know, we get out to 2025, 6, 7, like what your advantage is?

Speaker 2

Yes, absolutely. No, you're absolutely right that there have been a lot of announcements relative to new battery production capacity coming online for sure. And that actually is a testament to the just the expected demand that the automakers see for EVs in their portfolio. As much as we thought that EVs have been growing at a breakneck pace. It seems like there's no end in sight.

Speaker 2

This is just kind of pace to be continuing. And It is a massive, massive market. I don't know, 80,000,000, 100,000,000 cars a year kind of a scale. And to convert that whole market over to Electrified Power Trains, it will take a long time. It will take I don't know, it might take a couple of decades to fully transition over.

Speaker 2

And and so to satisfy that need, there's a need for a lot of batteries, 100 of gigawatt hours of capacity. So we don't do that demand going away. I think relative to why Our product is needed. The answer is that all of that capacity or substantially all the capacity that you mentioned is coming in the form of traditional lithium ion capacity, which means the energy densities, the power densities, the overall characteristics of those cells are very similar to what's available today. And Cat.

Speaker 2

And we think that having a better cell, which is a cell that delivers better energy density, better power performance, and Cat? That kind of cell will always have demand. And so what we're focused on doing really is Getting this new technology to market in order to enable our customers to take advantage of those capabilities. We heard very clearly from In fact, to be all the people we spoke, to all the customers that we have partnerships with right now, that the value proposition we offer is very compelling. Our main challenge is, as you know, is simply to get this to market.

Speaker 2

And so we're focusing very heavily on trying to do everything we can to minimized time to market. And that's where locking in on this 24 layer 5 ampher design, We think it's really a big step forward because it allows us to then have line of sight to a product, which allows us to order the tools that we need to mass produce the product, which allows us to get it to market. And of course, there will always be subsequent versions and subsequent factories that have more capacity. But All those all that additional capacity, all those follow on products, all run through the first product in the first factory. So if we don't do that, None of the follow on is going to happen, which is why we're laser focused on just getting this 24.5 amp hour cell to market out of that first factory.

Speaker 8

Thank you.

Speaker 2

Absolutely.

Operator

Thank you for your question. The next question is from the line of Mark Delaney with Goldman Sachs. Your line is now open.

Speaker 9

Yes, good afternoon. Thank you very much for taking the questions. 1st, I was hoping to better understand the commercialization timeline, which has been a point of emphasis in the letter and your remarks today. If I heard correctly, lower volume B samples of this 24 layer 5 amp hour cells next year. I think you said by the end 2025 for the higher volume B samples, but maybe help us more broadly understand when you may be in series production with that cell?

Speaker 2

Yes. So it's obviously easier to be a little bit precise about the near term milestones, right, because it's just forecasting, it's harder the further You got into the future. As I said, predictions are hard, especially about the future. So I think in the near term, we have the milestones that we've laid out for this year in our better from last quarter. Those include again as a reminder, and the higher early cat nodes, the more efficient packaging, the films coming off the new more scalable production process and then better reliability.

Speaker 2

Those are all things that are key requirements for any commercial product. And those will also go into these initial low volume B samples that come off the lower throughput line in 2024. Having said that, we do have higher throughput tools that we will be ordering that that will arrive and be installed by the end of 'twenty five. So we believe we can be making the first B samples off that higher throughput line Before they had a 25. That the B samples are things that we directly control.

Speaker 2

To go from B2C, of course, Now you have to get the automotive OEM involved and the timing of the C sample is really governed by the and the customer that you're working with. So that becomes a little bit less breast precise. But our target is to be able to ramp up that facility at the end of 2025 and then be able to ship Cat? Past that point.

Speaker 9

Okay. That's very helpful. Thanks for clarifying. You also emphasized the value proposition and you think there's some good balance with this product that you've selected to commercialize initially. Could you double click a bit on that?

Speaker 9

Maybe one on the cost side, I mean, how do you think the cost of the product will compare established cells that are in high volume initially, but then of course over time you should be able to ramp up. But some of the benefits, right, and you talked about

Speaker 5

the power. I

Speaker 9

mean, what would that mean for Consumer in terms of charge times and maybe some of the other benefits yourself could enable?

Speaker 2

Yes. I mean, I think the core benefits of the sale are really What we've been showing all along, right, we've shown the fact that lithium ion can The high density because we don't have the anode. So we don't have in our system, as you recall, we don't Not only do we not have an anode, but there's really 0 lithium in our cell in our anode as Manufacturers. So we only manufacture a cathode and a separator and bring them together as part of the assembly process. The analog forms in situ on the first chart.

Speaker 2

So that both gives us higher potential energy density, But it also gives us an opportunity to have some cost advantages because we don't need the annulant material, whether it's carbon or silicon or lithium foil. We also don't need the additive manufacturing line. Now obviously, you can't compare a small scale line with a super high volume line in terms of economies of scale and cost so on. But I think at this stage, when we have a production line, that will allow us to have all the details we need to then design Larger lines have more throughput. I think at the end of the day, what we believe is Our system has some key advantages in terms of economics and that's I'm referring to the not needing an anode and not having anode manufacturing line.

Speaker 2

And we believe this industry has volumes that are so high that economies of scale can absolutely be achieved. So if you couple those two things, we do believe that we can offer a compelling economic value proposition. The timing of that, of course, depends on the timing of the ramp.

Speaker 4

One other thing I could add just to connect the dots with the shareholder letter is, to maintain that, to capture savings there on and Cat. We have, of course, have to manufacture our separator at scale and gold and throughput that would fit with those targets. And that's why this disrupted this first stage of this disrupted separator process is so exciting that equipment is being installed now. And as we work towards specking up equipment for the 2nd stage. So that's a development that we think is positive towards that Product Gross Margin Direction.

Speaker 1

That's all very helpful.

Speaker 9

If I could just ask one last one. You spoke about amp hours of the cells. But as we think about overall storage capacity at the pack level, I think we need to think about how big the cells are versus 2,170 and how densely they could be packaged. So I don't maybe it's too soon to kind of have visibility into pack level density. But if you could you alluded to perhaps being better on that metric, but if you could talk in a bit more depth the overall density potential of yourselves versus what's out there today, that would be helpful.

Speaker 9

Thank you.

Speaker 2

Yes, happy to. It's a good question. So actually there are 2 points I'll make real quick on that front. One is that the energy density at the cell level, right, we believe will be higher with the QuantumScape solid state Methionmetal technology than conventional 2,170 cells. But secondly, At the pack level, because the cells we're shipping will be in a prismatic format, prismatic cells pack better, right?

Speaker 2

With the absolute cells, Imagine taking a bunch of water bottles and trying to pack them densely. You will have dead space between the bottles that you cannot get rid of. No matter how densely you try and Cat. There will be lots of space. I think the geometric calculations are on the order of 9% of the space is guaranteed to be lost to avoid space.

Speaker 2

Whereas with the prismatic cell, a bunch of rectangular blocks that you're packing, you can pack them up with 0 wasted space into a pack. So Combination of higher energy density at the cell level and more efficient packing because of the prismatic nature of the cell at the pack level Actually give you, we think, a compelling value proposition on Energy Efficiency.

Operator

Thank you.

Speaker 4

Absolutely.

Operator

Thank you for your question. There are currently no further questions registered. There are no additional questions waiting at this time. So I'll pass the conference back to the management team for any closing remarks.

Speaker 2

Okay. I'd like to thank you all for joining today's call. And in particular, I'd like to thank our investors for their continued support, our customers for their ongoing commitment to bringing and Market and of course the entire QuantumScape team with endless passion and dedication that drives our

Powered by Quartr