FREYR Battery Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 15, 2023

There are 9 speakers on the call.

Operator

Welcome to the Frayer First Quarter 2023 Earnings Conference Call. My name is Bruno, and I'll be the operator for today. During this presentation, you can register to ask a question by pressing star followed by 1 on the telephone keypad. I will now hand over to your host, Jeffreys Patel, Vice President, Investor Relations. Please go ahead.

Speaker 1

Good morning, good afternoon and good evening. Welcome to FerroBatteries' Q1 2023 earnings conference call. With me today on the call are Tom Ahner Jensen, our Chief Executive Officer Jan Arve Haugen, our Chief Operating Officer Oscar Brown, our Chief Financial Officer and Jeremy Bezdek, President of Frerot Battery US and EVP of Global Corporate Development. During today's call, management may make forward looking statements about our business. These forward looking statements involve significant risks and uncertainties that could cause actual results to differ materially from expectations.

Speaker 1

Most of these factors are outside Freres' control and are difficult to predict. Additional information about risk factors that could Material that affect our business are available on Frayer's S-one, an annual report on Form 10 ks filed with the Securities and Exchange Commission, Which are available on the Investor Relations section of our website. With that, I'll turn the call over to Tom.

Speaker 2

Thank you, Jeff, And good morning, good afternoon or good evening wherever you might be around the world. Again, it's a true honor and pleasure for us to present this Q1 2023 earnings call. This is now Flayer's 8th earnings call since we went public on the New York Stock Exchange On July 8, 2021, which is less than 2 years ago. We will take you through all the notable updates since our last earnings call. This is yet another quarter with significant milestones achieved in a highly dynamic environment and with the commissioning of the CQP, Momentum is even stronger than before on multiple fronts.

Speaker 2

Today, we will take you through the activities in February With a core focus on the activities at the CQP as we move towards 1st battery production. We will also dive into specifics around Giga America And the emerging response from Norway and the European government in response to the Inflation Reduction Act. There is a distinct and growing realization from regulators around the world that the energy transition is increasingly urgent And that it can only happen with large volumes of batteries included. Batteries are indeed becoming the new oil. And decentralized, decarbonize and democratize battery supply is becoming the most significant business opportunity in the decades to come.

Speaker 2

Today, we will show you that we continue our relentless journey towards a deep industrialization partner of choice strategy On both sides of the Atlantic, as we enter into the production phase of the semisolid production platform. 7 weeks ago, FRAIR opened up Our customer qualification plans in Moove, Iramaa, Norway. This marks the start of the commissioning of a world's first next generation battery production facility At Gigawatt Hour Scale. I am very proud of the team in Trier who have built and commissioned this facility In less than 2 years, in the middle of a global pandemic, supply chain disruptions, market disruptions and emplacemery pressure. Building a battery company is not trivial, but we are now deep into commissioning this highly advanced industrial scale production line of next generation battery solution.

Speaker 2

Every day, our dedicated experts are punching out discrete commissioning and test packages, and we're closing in on 80% completion In a matter of only a couple of months, I want to remind our investors that commissioning mega projects, be it an oil and gas platform, An aluminum smelter or in our case, an industrial scale battery facility is very time consuming, but also absolutely standard operating procedure. Parete is, however, deeply cognizant of the core catalyst for the company's further development, and I'm very proud to see that we continue to progress according to plan. However, in a matter of weeks, this facility will be producing the 1st battery through active anodes and cathodes combined together to form our 1st produced Chargeable battery. We will then in a gradual careful but relentless manner increase production of battery cells, Increased speed of production, increased yields, increased uptime, reduced scrap rates and improved battery design over time. While we are impatient in our quest for producing world leading batteries, we deeply respect the vastly complex and integrated challenges battery production represents.

Speaker 2

Our Chief Operating Officer, Mr. Jan Lardver Haugam, who has been responsible for building and operating multiple oil and gas platforms in the North Sea And the world's largest aluminum smelter in Qatar will today take you into the specifics of this. Moving forward, we aim to regularly Our investors with deeper technical data to support increased understanding of the very exciting and critically important, But still reasonably nascent battery industry. Catalyzed further by the extremely favorable inflation reduction act, I'm equally pleased to announce that we today are providing details around our Giga America project and we're now targeting 38 gigawatt hours in nameplate capacity in a place development with final investment decision targeted later this year. We target SOP for this project during the summer of 2025 and we're advancing fast forward in our project level equity efforts with a broad range of strategic and financial investors for the initial phase of the project.

Speaker 2

Our President of Clear Battery U. S, Mr. Jeremy Bezdek, We'll take you through the details of this highly valuable asset, which have initial value estimates of up to US8 $1,000,000,000 After tax for the 10 production line process. Jeremy, in his role as EVP of Global Corporate Development, We'll also take you through the amazing progress we are making with strategic partners through a deeper dive into our recently announced energy transition acceleration, Cholesent. I'm also very pleased to see that the EU's response to the Inflation Reduction Act is starting to yield significant results With Germany, France and Spain announcing $1,000,000,000 support packages late last week.

Speaker 2

Norway will provide solutions deeply aligned with E. U. S. Response And Zayed is in pole position as the leading battery company in Norway, and we have strong signals from an integrated dialogue with the Norwegian government. Norway's national battery strategy, which was launched in June last year at the Giga Arctic site and based on recent formal feedback from the Minister of Trade and Industry, We are optimistic that the strategy will turn into action before the summer.

Speaker 2

Jan Marib will take you through how we are continuing to develop Giga Arctic, Which is emerging as Norway's largest land based industrial project and therefore a catalyst for the energy transition in the country. Finally, I'm very pleased to announce that there is an overall Capital Markets Day, where we will host our investors on the New York Stock Exchange on June 27 Later this year. During this event, we will, among other things, dive in a live way, stream from the customer qualification plans to showcase Factory Manufacturing Live as a semisolid production platform, deep dive into technical milestone and catalysts, provide in-depth reports on our increasing and accelerating strategic, commercial and financing efforts. Let me take this opportunity To remind our investors about the unique exposure prior offers to the accelerating and largest secular shift in homeostatient's history. Zayed was founded based on the notion that clean battery solution is the core catalyst for the urgency required energy transition.

Speaker 2

In a world where the ambition is to limit global warming to 1.5 degrees C relative to current trajectories of almost twice that level, More than 70% of all decarbonization efforts have batteries included. Let me say this again, More than 70% of all decarbonization efforts have batteries included and everything That can be electrified will have to be electrified and it will not happen without batteries and enormous amounts of them. This same world is one where regional energy security and resiliency is increasingly required, While we still find ourselves in a situation where more than 80% of all battery and battery material supply is coming out of China and Asia. Analysts, estimators and others are systematically underestimating the required pace of change and regulators are increasingly playing catch up The targets like Fit for 55 and other ambitions. The Inflation Reduction Act and the temporary crisis transition framework in Europe It's not a toxicity war.

Speaker 2

It is a recognition that we need a step change in deployment of clean technologies if we're going to be in striking distance of safe temperature levels for mankind. With this backdrop, Freyr is partnering with global companies across the entire battery value chain, which Not only represents massive commercial opportunities for the company, but also combines with constant improvement in cost position over time. The lithium ion battery is a technology, not a fuel, and it will therefore constantly improve through learning curve effects. And while every battery that will be produced will be sold, Kreed has taken a position with the technology which offers step change in performance and costs While offering deep additional improvement potential over time to ensure that we can always stay at the left hand side of the cost curve. Now that we are starting operations of a highly automated and significantly simplified factory production process through the 20 gram platform, Trade intends to accelerate the development of its proprietary in house development of AI and digitally enhanced simulation system.

Speaker 2

Battery design and production represents the next frontier in AI supported production with the potential to dramatically improve Future battery sales performance as well as testing and production lead time in deep collaboration with globally leading companies such as Siemens And its partners NVIDIA and Amazon Web Services. As a New York Stock Exchange listed company, We are now entering into a very exciting period with multiple near term catalysts that should be welcome from our investor community. As one example, the value from the production tax credits under the Inflation Reduction Act for our Giga America Phase 1 project Alon has a value of close point 2.5 times Bayer's current market capitalization. The value from the project comes on top of this. The responses from the European Union will generate additional triggers as we enter into live battery production, Converting existing conditional loss stake agreements, lock in competitive non dilutive financing and build production capacity in multiple geographical regions.

Speaker 2

We are now a company with an operating battery facility. We create real optional value and we are as excited as ever about the future. However, all of this is obviously based on our ability to produce high quality batteries at high speed and low cost. So with this, let me now hand it over to Jan Arve Herrgang, our Chief Operating Officer and President of Grauer Battery Norway. Jan Arve, over to you.

Speaker 3

Thanks a lot, Tom, and hello to everybody listening on the earnings call. I'm now going to give you the latest update And as a regular and reoccurring topic, safety test. I'm glad that I can say that we had Another quarter without any reported serious safety incidents. However, we have reported 1 Incidents of high potential in late April, in addition to the 3 that we had reported in the Q1. All 4 high potential incidents or HIFOs as we label them, were related to lifting operations by subcontractors At the construction site in Wirana.

Speaker 3

The last one was a steel beam growing 400 kilos that came in contact with the Boom leaks and fell to the ground from a 3.5 meter hike level. Luckily, nobody was hurt. Investigations of these incidents are carried out by Ilut and Flexburg, and we are openly sharing the key evaluations and learnings with all our contractors and partners. And we are now intensifying our efforts to gather reports of unwanted incidents To enhance our ability to predict potential safety risks in the future. We are currently around 100 and 70 people working at our 2 sites in Muralana.

Speaker 3

Approximately 70 of those are at the customer qualification plan And close to 100 at the construction site for BBRT. We plan to sustain that level of activity until the summer vacation In July, Bayer Operations Group comprises nearly 50 individuals in Wodenow, reference, representing 16 nationalities. And we have been transparent in our previous earnings calls that we are not immune to the challenges that we face. We have complex deliveries from 16 different global suppliers. These suppliers were performing individual factory acceptance tests, And we are now well into the final site acceptance testing after having installed and mechanically completed these 35 Production line machines.

Speaker 3

There are also 2 to place 31 systems related to the building of infrastructure, which is tailor made for the battery factory. The complete customer qualification plan is divided into then a total of 388 discrete commissioning and testing packages. These are all individually verified against the technical specifications, and any deviation and or needed Collections are uniquely tracked in our comprehensive project completion system. We utilize a work process and system tool that It has been implemented as a copy paste from the most complex and challenging offshore and international industry projects Delivered by our project execution experts that have a good experience with this type of methods in the system. Currently, 296 of the 388 discrete test packages has been completed and are being handed over to operations team.

Speaker 3

And as we speak, the ramp up of holder handling and sharer mixing is gradually Picking up efficiency. This is a careful and defined process where the predefined standard operating procedures are verified and Based on collaboration with own process operators and instruments from the respective suppliers, A total of 277 standard operating procedures are defined to run the production line Mid-fifty operators at day shift and 9 operators at the 2nd shift. When the plant It's gradually moved from semiautomatic to fully integrated operations. The integrated control room We'll be able to collect data from a total of 5,100 digital sensors in the plant. Safety and loss prevention The site is built into the control system.

Speaker 3

And in the initial phase, we realize that there will be interruptions That we will call due to alarms from sensors that needs to be fine tuned and calibrated in order To meet the cost and effect design that we have defined. South Korean contractor, Hanotech, did complete the commissioning And in the and the site of Sutton Test in the formation and aging section. And now operations team has taken over the control of this part of the plant. And in the last month, all upstream systems, that is from the warehouse through the powder handling, spray mixing and into the cartridge filling station, I have now been commissioned and handing over to operations are in good progress. Operations are currently running, Powder handling and slurry mixing based on an inactive solvent, pending the introduction of active electrolyte into the slurry.

Speaker 3

That is the main feature of the 24 ms technology. The core equipment of the semi solid platform It's the casting and unit cell assembly delivered by Empire Plantard in the UK. As noted previously, this is the delivery on the critical path towards the 1st factory NASDAQ. As of today, the assembly are mechanically completed and sequential tuning of the integrated unit is ongoing. This is a complex activity, and all measures are taken to avoid any damages into the of the precious mechanical equipment.

Speaker 3

On the next slide, you will see the latest update from Giga Arctic construction site. Since our last market update, the civil contractors I'll continue the operations. The direction of the production holes in Moove. The photo at the left is from the November last year. And at right, you can see the latest drawn picture.

Speaker 3

The building and infrastructure contractors are continuing at the upstream buildings On the picture. Project engineering is continuing with front end loading of the design of the production line equipment with focus On more detailing on the integrated production control system, now with the support of the seamless digital experts following the frame agreement signed last month. Finally, before I give the word to Jeremy, Please let me again use the opportunity to note that our ongoing field engineering, our production line equipment and continued build side development of the Giga Arctic It's managed in close cooperation with the scoping of the America plant. Currently, Freyr has Strengthen the integration and interaction between Norway and the U. S.

Speaker 3

End activities by virtual collaboration in the data models for first Pre engineering and product execution planning for the phase plant development in the U. S. This was operational update for today. And now I give Gerdau over to Jeremy for an update on VIA America.

Speaker 4

Thank you, Jan Arba. It is definitely an exciting and interesting time to be in the energy transition space and specifically with the great opportunities that are in front of us as a company. The strategic partners with which we are involved bring capability and momentum that help us define our role and pursue success in this generational transition. As we discussed in February, during our Q4 update call, we were evaluating options to accelerate the Giga America project. The team over the last 3 months have devised a project plan that will enable us to bring 2.5 gigawatt hours of capacity online by the summer of 2025, Followed soon after by the larger plant that we have been discussing previously with the start of production during the summer of 2026.

Speaker 4

We are labeling the combination of these two projects as Phase 1 as we of course have additional visions of growth for the Giga America business And specifically for the Georgia site. But we are dividing Phase 1 into Phase 1a and 1b To reflect the 2 different financing processes with different start of production timing. The total capacity of the cumulative Phase 1 is 38 gigawatt hours, As Tom had mentioned before, to fund the CapEx needed for Phase 1a, we have initiated a formal process working with the financial advisor Where we have engaged multiple strategic partners within the Freire ecosystem as potential strategic investors At the project entity, we are striving to fund all the CapEx requirements of that phase through this formal funding process. Currently, we have multiple parties in the data room and conducting due diligence and we hope to be able to update our progress over the coming weeks months. We have completed the financial model for the entirety of Phase 1 broken out between Phase 1a and 1b And the net present value and returns of the projects are quite attractive.

Speaker 4

Phase 1a, which includes the process design upgrade We plan to do after completion of the 1B project is modeled with an estimated NPV of over $1,400,000,000 We believe Phase 1b will generate an NPV of $6,600,000,000 The total NPV of the Phase 1 cumulative project sits at 8,000,000,000 With $2,500,000,000 of that projected NPV coming directly from the production tax credits defined in the Inflation Reduction Act. We believe the generation of these credits specific to the energy storage market in which we participate are well defined With the remaining uncertainties related to the EV credit, we are also confident in the certainty of the IRA program seeing its way to completion in 2,032. However, as you can see from the numbers, even without the production tax credit, the Giga America Phase 1 project is economically quite attractive. I would like to make one final point to clarify the Phase 1a investment process we are undergoing currently detailed on Slide 10. We are raising money at the project level entity, which will be a company that sits below the U.

Speaker 4

S. Holding company within the Frayer corporate structure. We believe it's attractive for our strategic partners to own project level equity and we believe this is also attractive to shareholders of Frayer At the public entity level, due to the significantly less dilution that occurs with this strategy. We will continue to define the project scope for Phase 1a of the project, hoping to accomplish the final investment decision by early fall this year. This FID timing will coordinate well with the timing of the fundraising process.

Speaker 4

I also wanted to speak briefly about the Energy Transition Acceleration that we announced at our Chapter 1 event in Norway at the end of March. We are fortunate to have strategic partners such as Glencore, Caterpillar, Nidec and Siemens participating with us in this coalition. We are all aligned that the acceleration in scaling clean battery production We'll be key to advancing the energy transition. Since the initial announcement, we have had multiple inbound conversations with additional partners That expressed an interest in the Coalition and we are currently working through a selection process to add some additional names in other key parts of the value chain. Additionally, we are kicking off the steering committee for the Coalition at the end of May where we will be identifying key work streams that will be attacked by members Of the partner companies within the coalition.

Speaker 4

We will be taking on problems and opportunities that exist across the battery value chain with a collective effort To solve them faster, while also identifying commercial opportunities for each of the members of the coalition. We will continue to provide updates on the progress of the coalition regularly as we move forward. Thank you for your time today. Jan Arbus, back to you.

Speaker 3

Thanks a lot, Jeremy. And now to Slide 12. Our team managing our strategic sourcing Progress further in securing our raw materials. For our CPP, all materials are secured. Materials for the ramp up are now stored At our warehouse in Moran Asante.

Speaker 3

Freyr has increased efforts in developing a more regionalized supply chain As we reflect on the risks related to global supplies or raw materials to the battery production, sorry. Fayed has increased the effort in developing a more regionalized supply chain As we reflect on the risks related to the global supplies of raw materials to the battery production. As noted in the previous earnings calls, Trejo has a joint development agreement with Finnish Minerals Group of FINRA. The addition of this partnership is to develop a business case for an LFP plant outside the city of Vasa in Finland as a common approach. We have also secured a major share of our raw materials needed for the Giga Arctic.

Speaker 3

To prepare for Giga America acceleration, we have started Extending our contracts made already for Giga Outfit to global supply contracts, including Giga America, That's been our focus. Our suppliers are reacting very positive and see that this is an additional chance for them. Thus, we expect that we can and will secure raw material contracts for Giga America before the final investment position. As can be seen from this Slide number 12, we are in dialogue with several suppliers for alkaline desourcing The technical qualification of alternative products and materials is well underway in Ferris's own lab facilities in Fukuoka, Japan, as well as in collaboration with 24 ms Investment. So by this, I hand the word over to Oscar, who will give us the financial update.

Speaker 5

Great. Thank you, Jan Aver. Moving now to Slide 13, the financial update slide of the earnings deck. I will review our financial results for the Q1 of 2023 As well as provide an update on our financing initiatives. For the Q1 ended March 31, 2023, Friar reported a net loss $13,000,000 or $0.09 a share compared with a net loss of $35,000,000 for the same period of last year.

Speaker 5

The net loss improvement for the Company's most recent quarter compared to last year was a result of a slight positive non cash gain on our warrant liability fair value adjustment due to changes in our from the end of the year versus the Q1 and a non cash loss last year. In addition, The company reported a $16,000,000 foreign currency transaction gain for the Q1 of 2023 on the back of a strong U. S. Dollar First, the slight loss for the same period in 2022. More importantly, the company reported higher general and administrative expenses As well as higher research and development costs for the Q1 compared with the same quarter last year.

Speaker 5

Logically, this is a function of our large organization, Which is managing more projects around the world. The Q1 of each year is also cost heavy compared with the remaining quarters of the year Due to costs related to year end audits and other one time costs and accruals, for the full year of 2023, we We expect our overhead costs to remain around the previously disclosed run rate of less than $95,000,000 per year at the company's current level of activity. This activity is supporting the accelerated development and project level financing of Giga America, completing and ramping operations of the customer qualification plant, Continuing the measured pace of progress at Giga Arctic and its related financings and other business development activities. Regarding our cash investment rate and liquidity, we spent net cash of $88,000,000 in the 1st quarter Compared with $107,000,000 during the Q4 of 2022 $41,000,000 a year ago in the Q1 of 2022, We ended the Q1 of 2023 with $475,000,000 of cash, cash equivalents and restricted cash And no debt. As shown on the financial update slide in the earnings deck, naturally cash was spent on corporate overhead, operating expenses and capital expenditures, Primarily supporting the customer qualification plant in Giga Arctic, the early development activity for Giga America and other business development activities.

Speaker 5

Capital expenditures of $64,000,000 were split roughly 25% for the CQP and test center and 75% for GIGARCTIC. Remaining capital expenditures payable for the CQP and Test Centers should be paid in the Q2 of 2023 as all plant equipment was delivered In time for the CQP opening in late March. While the Board has approved some additional expenditures for Gig Arctic, The timing of those expenditures depends heavily on the timing and scale of the Norwegian response to the U. S. Inflation Reduction Act, so we were not providing any guidance at this time.

Speaker 5

Assuming a reasonable response, this will allow us to reconsider the capital stack for the project. In the meantime, we're highly focused on the operational ramp at the CQP And the acceleration of the Giga America project. As previously mentioned, the U. S. Inflation Reduction Act, Section 45X production tax credits Begin declining in the year 2,031 and will be completely phased out by the end of 2,032, so time is of the essence.

Speaker 5

Partnering in the U. S. Is key to our financing and development plans with farming down an interest in the project as a primary funding source for the first two production lines. As this project has always been positioned as a joint venture, we view project level equity raised in the farm down process as non dilutive and, And facts should be a very positive value we drew to the parent company given where our stock is trading today. The partner Using partner equity to fund the first two production lines will allow us to move much more quickly in getting batteries to market and allow us to take advantage of the lucrative merchant market Versus traditional financing routes, which require long project financing processes and potentially discounted long term offtake agreements.

Speaker 5

That said, we have also already begun early discussions with the U. S. Department of Energy Loan Production Office regarding financing of Phase 1B of Giga America, which is the 8 additional production lines in the future upgrade of the first two lines. In addition, we have begun discussing the same with the project finance banking community. Terms, timing and costs We'll of course ultimately drive our decision as to which option we choose with our partners for the debt component of this phase of the project.

Speaker 5

But to be very clear, we expect the farm down process alone to raise sufficient capital to get the first two lines of battery production in the U. S. Up and running. As a reminder, we received an excellent package of incentives from the State of Georgia and Coweta County, totaling around $410,000,000 Tied to capital investment and employment targets for Giga America. While most of these incentives are tax abatements, there are grant components.

Speaker 5

As expected during the Q1 of 2023, we received a $20,000,000 grant from Coweta County. This grant was booked directly to the balance sheet With an offsetting long term obligation to reflect the requirement for us to hire a certain number of people for the project over time to keep the grant. So while we receive the cash in the bank, you will not see it flowing through the income statement or cash flow statement at this time. We have also obtained approval to receive $7,000,000 from the state under a similar construct and are just awaiting disbursement. Or globally, we are pursuing additional grants Under programs in the EU, Norway and in the U.

Speaker 5

S. And we'll keep investors posted on any developments in future quarters. We will continue spending on Giga Arctic and Muroran as we have been at a measured pace as we anticipate a response To the IRA from Norway, now that the EU has approved a basic framework. While we have already received indications of interest To provide project financing support from Exosent in the form of potential debt guarantees and the European Investment Bank and the Nordic Investment Bank in the form of direct project loans, The Norwegian response to the IRA is critical to ensuring Giga Arctic's global competitiveness. We are highly encouraged by the now very specific support programs announced last week by Spain, Germany and France for projects in their countries.

Speaker 5

We expect more EU and EEA countries to follow suit. The potential favorable impact on the economics of all our projects around the incentive programs in the U. S. And the potential response in Norway is significant. While we have a long list of stakeholders at fire, allocating capital to the highest return projects is central to our financial policy.

Speaker 5

Despite these long term activities, our primary focus in the near term is getting the customer qualification plant producing testable batteries as soon as possible. This is key to validating the 24 ms semi solid platform at gigascale and an important derisking event from a customer financing perspective. We continue to field and evaluate capital formation opportunities and interest from a wide range of existing and potential commercial, strategic and industrial partners, as well as financial institutions. This interest appears to be driven by the widespread relief and the robust fundamentals behind the long term expected growth of battery demand for both Energy Storage Systems and the EV Markets and the incredible progress Friar has made to date since its New York Stock Exchange listing less than 2 years ago. We are striving for partners who believe in Thayo's mission and can grow along with us as we evaluate and take on projects like Giga Arctic, Giga America, The potential for upstream integration, our entrance into the mobility market and other opportunities.

Speaker 5

Again, our U. S. Initiatives, The Inflation Reduction Act and the CQP opening in March have acted as catalysts for such discussions as evidenced by the excellent response so far I should also say again that the 45x provisions in the IRA that relate to battery cell and module production tax credits are very significant and very simple, unlike some of the perceived complexities around the EV related incentives that required Treasury Department clarifications. Produce a battery or module in the U. S.

Speaker 5

Using raw materials from anywhere in the world and sell the finished product anywhere in the world And you earn production tax credits. It's quite straightforward. The other simple math is that for every gigawatt hour of annual production in the United States, The company would generate $35,000,000 of tax credit for battery cells and $10,000,000 of tax credits for modules. The 5 year direct pay option turns tax credits into cash regardless of how the tax credit monetization market develops over time. These numbers get quite large when one considers a factory with 38 gigawatt hours of nameplate production capacity.

Speaker 5

In any case, we are grateful for the ongoing support of all our financial and industrial partners and especially our shareholders as our progress on all fronts As well as the continuous improvement in the demand outlook for our products and the urgency of addressing climate change, localized energy security And energy costs being demonstrated by businesses and developments and governments around the world. With that, I turn it back over to Tom for additional comments.

Speaker 2

Thank you, Oscar, Jeremy and Jan Marwan. My job is becoming increasingly easier with such a dedicated professional and capable team. Thank you to you all and all the prior employees for all the hard work you put in every day. As you have heard, we're moving forward at full speed For its large scale battery production based on the urgent need for sustainable development. Speed, scale and sustainability was, is and will continue to be the strategic pillars of the company as we accelerate 4th screen battery solutions.

Speaker 2

We have the people, we have the assets, we have the technology, we have the market and we have momentum. As always, we will focus on what we can improve, keep an opportunistic approach to value creation, augment our industrialization partner of choice approach And constantly add partners, customers, investors and professionals. Let me now move to the final slide before Q and A And also for my sincere gratitude and appreciation to all of our investors and shareholders. That stated, We are hosting TRYEAR's inaugural Capital Markets Day on June 27 at the New York Stock Exchange, Chapter 2 in TRYEAR's development. We are excited about inviting our investor and shareholders to this event 2 years after that special moment when I press the green button on the balcony.

Speaker 2

We will provide live stream from the customer qualification plan and showcase live battery manufacturing of the semi solid production platform And so update from the Giga Arctic Construction. We aim to set a new benchmark in how a battery company should communicate milestones And technology progress as the nascent battery industry will benefit from increased understanding and insights across the entire ecosystem. We will therefore deep dive into technical milestone and catalyst, provide in-depth reports on our increasing and accelerating strategic, Commercial and financing efforts and maybe, just maybe provide a surprise or 2. Finally, I would like to thank our investors for your support and your patience. We will revert with invitations and further details, but stay tuned.

Speaker 2

We are coming to a theater near you. My final advice to you all is, as always, to stay long, or should I rather say go longer. Life is not boring and definitely not intended to be short. With this, let me hand back over to Jeff Thank you for your attention. Jeff?

Speaker 2

Thanks, Tom.

Speaker 1

Operator, we're ready to open up the line for questions.

Operator

Thank you. Our first question comes from Gabe Daoud from TD Cowen. Gabe, your line is now open. Please go ahead.

Speaker 6

Thank you. Hey, everyone. Thanks for all the great detail on prepared remarks. I was hoping maybe

Speaker 3

Hi, Gabe.

Speaker 6

Can I just get a clarification or maybe just a little bit more color on when we could expect fully automated cell production from CQP? Is it I guess, is it 3Q at this point?

Speaker 2

Well, good morning, Gabe, and thank you for that question. As we are Stating in our prepared remarks, we are getting ready to produce the first active electrodes, both cathodes and anodes, And then we will gradually produce more and more of them. As you know, when we're scaling a battery facility with a first in kind technology, even though it's already a Triple digit megawatt hour scale and production in Japan. We are increasing the automation speed and increasing the size of the facility to gigawatt hour scale. So we want to sort of take baby steps forward to ensure that we get everything right.

Speaker 2

So We will start off by producing active electrodes within a matter of weeks, then we will gradually increase that and we'll improve the machinery. So during the course of the year, we will definitely be speeding up production, speeding up battery cell manufacturing and getting into The catalysts and milestones that we require to satisfy the conditions precedent in the offtake agreements that we have. Exactly when We will have fully automated production at what speed and what yield and what uptime is something that we will provide more color around In our Capital Markets Day update, but it's definitely going to be a gradual approach. The good news is we are getting ready to produce The first active electrodes with this new larger, thicker electrode and battery that we are producing in the customer qualification front. And as we evolve moving forward, we will provide additional updates as to when you can expect increased speed, increased yields, increased Uptime and reduce scrap rates, etcetera.

Speaker 2

This is something that we will get back to in more detail during the Capital Markets Day on the 27th June.

Speaker 6

Thanks, Tom. That's super helpful. Looking forward to those details. Okay. And then maybe just shifting to Giga America, Mentioned the 2 new phases here just splitting out between Phase 1a and 1b.

Speaker 6

So for 1a, the first two lines, so So we just think about it as maybe $125,000,000 or so for those two lines and just given prior comments on CapEx requirements Per gigawatt hour of output, so $125,000,000 for

Speaker 3

those two lines. And then how much should we expect

Speaker 6

Prior to sell down in terms of ownership of those two lines?

Speaker 2

Well, so and Jeremy, you can weigh in here, but just sort of a general comment. So as we are alluding to, we are now announcing a 10 production line total facility. It will be built in 2 phases. And obviously, there will be certain upfront investment cost and infrastructure cost and building cost, etcetera, where we'll host the first two initial lines. And then we will upgrade those gradually and then we will add additional eight lines on top of that and of course Build more upstream and downstream equipment as we go along.

Speaker 2

We are not guiding specific CapEx at this point, But we will be providing more color and detail around that as we are approaching the FID. But maybe, Jeremy, you can talk a little bit more about Quantum of capital that we're targeting to raise and provide some more nuance to this to our investors.

Speaker 4

Sure. Happy to do that, Tom. And Gabe, to your question, this financing process that We have undergone and kicked off about, I guess it was almost a month ago now. We're hoping to raise north of $800,000,000 but that is Obviously, not just CapEx related. It includes the burn rate over the next several years for the Gig America It also includes some of the pre spend infrastructure for the second plant as we talked about, working capital requirements For the project and not to mention, I mean, we're building a big team.

Speaker 4

We have 20 U. S. Employees today and we'll be building 300 employees over the next couple of years and so costs associated with that. So, as Tom said, we'll be providing guidance on the CapEx Later, but included in that raise will be, again, all at the project level. And so we're excited about the engagement we've had so far both with strategic partners and some financial sponsors as well.

Speaker 5

And Gabe, if I can just add just to give you some context, Gabe, the customer qualification plant is a single line Facility with limited upstream and downstream and it's a brownfield because it's not meant to run 20 fourseven and that kind of budget you just referenced is more in line with the CQP. And again, this is a two line full capacity, full upstream and downstream, meant to run 20 fourseven commercial kind of operations. So It'll be bigger than that obviously.

Speaker 7

Yes. Got it. Got it.

Speaker 6

Okay. That all that makes perfect sense. Just the last one For me and then I'll take the rest offline. But the Slide 9 talks about the NPV coming from IRA tax Could you maybe just give us a little bit more color around that and the expectations or what the assumptions are in terms of We're keeping the entire credit or you're sharing that amongst some other parties? Just any more help there on that $2,500,000,000 of NPV from IRI would be helpful.

Speaker 6

Thanks, guys.

Speaker 2

Yes. So maybe I can just give some color on it. So we've modeled, of course, Our perception of the market moving forward, we fundamentally believe in a structural market short environment, particularly in the energy storage space. So we are thinking merchant pricing at least for the initial phase of the project since we're going to have project level equity financing going into it. We are assuming a set of CapEx numbers that we are now validating and updating and benchmarking to global benchmarks.

Speaker 2

We're also seeing Some deflationary pressure happening in the markets, and we're trying to capture that as we're sort of building out larger facilities. And as you can imagine, We will be parallel developing, as we mentioned, both Giga Arctic and Giga America, so that gives us also purchasing power in terms of how we are Sourcing our production line equipment and moving forward generally in that. We will, of course, when we enter into project finance for the Subsequent Phase 1b and the larger A Plant facility, part of that will be DOE loan Supported as well as project finance supported. So we have reflected the lower, let's say, pricing that we probably have to accept And when we enter into long haul take agreements to support the project finance of that phase of the project. When it comes to the division of the production tax credits, it's a little bit too early to tell how And that will sort of play itself out.

Speaker 2

What we are observing in the market is that our customers, which is important to note, Now have quite deep incentives to develop standalone battery storage projects, which by the way, the 2 of which is a record high, Both standalone battery storage projects as well as solar plus storage projects, and that is pre IRA. And the incentives to establish these facilities in the U. S. Are actually quite significant. And we have inbound requests from potential customers to actually share those investment So I think the jury is out in terms of how much is Kind of divided and how that production tax credit ultimately filters through to the market.

Speaker 2

It's clearly a function of demand and supply at the end of the day, But we do see demand really, really high. And then I guess the key question is who is able to produce supply in a timely manner. We have a head start in the sense that we are starting up our customer qualification path, which again is an industrial scale production line. And largely or sort of generally put, you could say that both Giga Arctic and Giga America are multiple replicas of that. And with the blueprint that we have established for Giga Arctic, we are sort of having a flying start, if you like, into the development of Giga America.

Speaker 2

So We really are looking quite favorably upon the future. But as we mentioned, we see the net present value of this project On a full ten line capacity basis at $8,000,000,000 of which $2,500,000,000 is the gross, let's say, net Present value from the production tax credits, and then we'll see how that all sort of manifests itself over time. But maybe, Jeremy, you want to add something to this, this is kind of generating a little bit how we're thinking about it?

Speaker 4

The only just nuance I would add is that the $2,500,000,000 of the 8, We are assuming full realization of both the self production credit and the module production credit in that number. So that's what's in the model today.

Speaker 3

That's my

Speaker 7

only clarification.

Speaker 1

Got it.

Speaker 6

Okay, great. Well, thanks guys. Appreciate it. Thanks, Gabe.

Operator

Our next question comes from Gregory Lewis from BTIG. Gregory, your line is now open. Please go ahead.

Speaker 4

Yes. Thank you and good morning

Speaker 8

and good afternoon everybody. Tom, Thank you for the slide on outlining the strategy for Giga Americas. I was hoping for a little bit more clarity around Phase 1a, in terms of the size, it seems like the nameplate capacity for that line is a little bit Smaller than it seems like it's going to be in the back as we kind of move forward. Any kind of color around that? Was that kind of a function Speed to market available, the supply chain supporting that, funding, any kind of color you can give around that, just given that it seems Phase 1.8 is a little bit smaller than what the average line is going to be going forward.

Speaker 2

Yes. Thanks, Greg. So just a quick Response today. So bear in mind that the 20 frame technology has any well, not any, but most battery technologies are sort of generations of The production technology and those generation have a tendency to increase in speed of production over time. Of course, there are intrinsic limitations to conventional technology in terms of how much active material you can push through the system.

Speaker 2

We are starting off with what we label Generation 2, and that is what we have de facto built at the customer qualification plan. That has a certain speed of production when it's operating at negative capacity. Then we are implementing as we are also describing in And the materials to generation 3, which is a significant increase in speed of production. And that of course increases the throughput Speed of an installed capital expenditure unit. So the first two production lines after upgrade is more like 8 gigawatt hours of capacity When it sort of turns into Generation 3.

Speaker 2

So that's a little bit more color around that. And as mentioned on the CapEx side, Principally, we will of course raise at the project level the equity required to build the initial 2 production lines of Generation 2. We will also upgrade those production lines at the later stage, which is also embedded in what we're raising capital for. And then we will gradually replace the Generation 2 lines with Generation 3 lines. Bear also in mind for your benefit We are producing LFP batteries, large pouch based cells, which we will ultimately embed into modules For largely speaking the energy storage market, but also increasingly for e mobility applications as we announced In January this year, our first sort of conditional OpEx agreement in that regard.

Speaker 2

So that's a little bit how you should think about this. So if you average out what we have stated before relative to number of production lines, I agree that 2.5 gigawatt hours seem low, but that is because it's Only in Brackis Generation 2, which will be upgraded to Generation 3. And then it's LFP versus NMC, which of course is the Same as we've said before, but that also has a certain impact on the energy density that flows through the system. So hopefully that provides you additional color. Jeremy, feel free to respond to that.

Speaker 3

No, that was super helpful.

Speaker 2

No, that was super helpful. Thanks very much.

Speaker 3

No, that was

Speaker 2

super helpful.

Speaker 5

Thanks very much.

Speaker 4

Go ahead.

Operator

Our next question comes from Philip Koning from Goldman Sachs. Philip, your line is now open. Please go ahead.

Speaker 7

Yes. Hey, guys, and thanks for the presentation. I guess my first question is on the progress of the CQP. Sort of when do you envisage that you can post finishing the electrodes? When can you Sent those sample sales to your customers and reached a validation level that will sort of unlock the final investment decision For Giga Optic, sort of how many months out are we from that point in time?

Speaker 7

And what is sort of the visibility that you have on that process? And my second question is on the U. S. Part on that Phase 1a. I guess, how dependent is that facility and That financing from on a project level coming and how dependent is that on progress on the CQP as well as that sort of Interlinked in the same way, and we can sort of think about a similar timeline.

Speaker 7

And then my last question is just on the CMD. Would that be very much focused on the technology? Will it be more focused on Giga America? Sort of any more color And the event will be much appreciated. Thank you, guys.

Speaker 2

Thanks, Philip. So when it comes to I mean, I was trying to answer that question and a previous question, I guess, in terms of moving from commissioning the customer qualification plant to electrode production to high The throughput of, let's call it, qualified batteries that unlocks conditional offtake agreements and therefore financing. So we are moving into that production phase now. And as mentioned, we are weeks away from producing our first active electrodes, meaning that we can charge and discharge Batteries, essentially, from products that we are producing at the TQP, then we will, In a careful manner, increase the number of electrode pairs that we're producing, putting them into an increasing number of batteries And increasing the speed at which we're producing the MAT, during that time, we will encounter issues and challenges that we have foreseen. And as we've mentioned before, we have identified more than 1500 potential standard operating procedures to sort of rectify potential errors in production as we move along.

Speaker 2

So we're well prepared for the issues that come. But it's a little bit hard to sort of be very specific on When exactly we will have a sufficient amount of testable batteries that will unlock the offtake agreements, but we're definitely in The coming weeks months going to increase that speed quite dramatically, speed in terms of producing testable batteries. We're also of Integrating our customers deeply into the testing regimes that we're doing on-site. And we're obviously also going to do 3rd party testing of the same batteries. So you should expect that our timelines for unlocking additional financing Is in the coming weeks months is really where we are.

Speaker 2

When it comes to then, your second question, how does this sort of filter To the project level financing of Giga America, clearly, our customers there and our investors and strategic partners We'll want to sort of have clarity and comfort around our ability to produce batteries at relevant, let's say, With relevant technical milestones and metrics. But at the same time, they're also Deeply embedded in the strategic intent of unlocking the energy transition. So it will be a phased approach with these stakeholders for sure. But there will, of course, be a link to our ability to produce batteries. But we're talking about unlocking these things in a very significant manner In the not so distant future.

Speaker 2

And as I said, on the Capital Markets Day, to your third question, we will be providing additional color, not only on the technology. As we mentioned in our prepared remarks, we aim to be very transparent about our technical milestones. We aim To provide you with what we are looking for when we're scaling technology, we're scaling the 20 gram technology. We aim to provide you with details around Yield metrics, speed metrics, uptime metrics, scrap rate metrics, etcetera, as we find appropriate as we move forward. So that will be one part of the Capital Markets Day presentation.

Speaker 2

We will also provide deep dives into our Strategic, commercial and financial partnership discussions, and there are quite many of them. Not only the Energy Transition Acceleration Coalition partnerships which we announced at the opening of the customer qualification plan, There are multiple additional partnerships in the making as well. So you should expect a broad envelope of topics, But relevant level of detail that will answer more, maybe not all of the questions that are posed on this call, but definitely much more color To provide more guidance as to how we're moving forward.

Speaker 7

Thank you, Sam. Best of luck.

Speaker 3

Thanks

Operator

Our next question comes from Jillian Smith from Bank of America. Julian, your line is now open. Please go ahead.

Speaker 8

Hey, guys. This is Alex Vrabel on for Julian. Thanks for taking the question. Just a follow on I think to one of the earlier questions that was raised on the NPV math you guys have done here. When we think about the distribution of the $2,500,000,000 of tax credits, I mean, how much of that is reflecting in Phase 1A versus 1B, presumably 1A has a bit of an outsized advantage given that it's running ahead.

Speaker 8

I'm just curious if you can speak to sort of Timing and how quickly that NPV would move around depending on your FID timing?

Speaker 2

Yes. Thank you for that question. Jeremy, do you want to chime in on this one?

Speaker 4

Yes, sure. So we have looked at in the model a breakdown of the credits coming in that make up that 2.5. We see it's roughly I mean, keep in mind, it's not only just timing, but it's also capacity. And so Well, yes, 1a does have an advantage from a timing standpoint. It's likely only to be about 1 year versus the capacity delta for 1b.

Speaker 4

So we actually see it about I'm trying to do math in public here. I think it's like 70% of that, maybe 65% to 70% of that 2.5 Is in the 1B project with the remainder coming in the 1A project. So again, when you look at 38 gigawatt hours of capacity And you have 8 of it coming in 1a after the upgrade. And of course, that upgrade happens a little bit later in timing. So you have The smaller capacity early, which again, the whole point of this acceleration plan is to go get those credits and the margin associated with the business In Phase 1a, and being able to do that earlier than what we had originally planned.

Speaker 4

And so it's all sort of a net add to the total project, But the breakdown is about 65% to 70% in 1b of the credit and the rest coming in 1a.

Speaker 8

Got it. That's super helpful color. Maybe shifting back to Giga Arctic, you guys made a series of mentions around So your capital spending cadence, I think Tom you mentioned you expect something as early as summer. Not to hold your feet to the fire, but we're pretty close So, Summer, what exactly are you waiting for, if we can just sort of throw the broad based question? And then how do you think about whatever that is translating to how you're willing to allocate capital given all the sort of multivariate things you guys have going on?

Speaker 2

Yes. So I guess you're referring to the IRA response from the Norwegian government Linked up to the EU's response under the temporary crisis transition framework. And as we have alluded to in the presentation material, Of course, the European Union did come out with their, let's say, high level responses to the Inflation Reduction Act earlier this year. That is now starting to manifest itself into specific support packages for Gigafactories Being developed in countries like Germany, France and Spain. And all of these were announced last week, towards the end of last week.

Speaker 2

Still a little bit unclear as to the detailed specifics of it, but we're talking about support packages for Gigafactories in the billions. The Norwegian government, which of course we have a very strong and close relationship with, have Since they launched their national battery strategy at the Giga Arctic site less than 1 year ago, I have clearly stated that the Norwegian support packages will align very closely with those of the European Union. So if anything, the support packages that we're now seeing is a reference to what you should be expecting from the Norwegian We, of course, have been quite specific in our dialogue with them as to what we believe our competitive support packages to unlock The scaling of Gigafactories of the kind that we're building, and we have been provided with formal Feedback that such clarity will be provided to us before the summer. Before the summer in this context is Probably by the end of the Q2, but before the summer is what we have technically Been communicated. So these are weeks away from having more clarity on this.

Speaker 2

When it comes to that, the second part of your question, As we've also been quite clear on in Oscar's remarks in particular, we are prudent when it comes to Releasing and spending capital, even though we have a strong balance sheet, we clearly need to raise Additional capital for the projects that we are seeking to build, specifically Giga Arctic and Giga America. We've spoken at length that Giga America on Project level equity raise there. And for Giga Arctic, we are with government support moving towards Unlocking the project finance later this year. So depending on what support package comes Drew, we will then evaluate what that is and then we will revert back to the market with our specifics in terms of how we push that project forward. But in the meantime, We are continuing to develop it at so called measured pace.

Speaker 2

So as you will see and you can see from the materials, The plant is developing and it's becoming a large facility. And we're obviously going to continue to move forward on it, but in close lock With the development of the intensive packs coming from the government.

Speaker 8

Got it. That's really helpful color. I'll take the rest offline. Thanks.

Speaker 1

Thanks, Alex.

Operator

We currently have no further questions. So I'd like to I'll hand the call back to Jeffrey Spatel for final remarks. Please go ahead.

Speaker 1

Thanks, Bruno. Thank you, everybody, for your time and attention and With thoughtful questions, we'll be available for follow ups the rest of the day and the week. And we will see you on the road very soon. And then course, we're looking forward greatly to hosting everybody at the New York Stock Exchange on 27th. We'll speak to you soon.

Speaker 1

Thanks.

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FREYR Battery Q1 2023
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