Enovix Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
October 29, 2024

Key Takeaways

  • Enovix delivered $4.3 million in Q3 2024 revenue, representing 13% sequential growth and surpassing the midpoint of its guidance.
  • The newly opened Fab 2 in Malaysia achieved ~80% yields on its Agility line, with the high-volume line on schedule for site acceptance testing and mass production of smartphone and IoT cells in late 2025.
  • Enovix secured its first global smartphone OEM agreement for a late 2025 phone launch, shipping EX1M samples now and preparing EX2M sample shipments in Q4 to accelerate full-scale production.
  • A second leading smartphone OEM partnership and a mass-production purchase order from a major IoT customer further bolster the 2025 sales pipeline and highlight diversification beyond smartphones.
  • For Q4 2024, Enovix expects $8 million–$10 million in revenue, an adjusted EBITDA loss of $19 million–$25 million, and maintains a strong balance sheet with ~$200 million cash, providing runway into 2026.
AI Generated. May Contain Errors.
Earnings Conference Call
Enovix Q3 2024
00:00 / 00:00

There are 15 speakers on the call.

Operator

Thank you for standing by, and welcome to the Enovix Corporation Third Quarter 2024 Earnings Conference Call. Currently, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. As a reminder, today's program will be recorded. And now, I would like to introduce your host for today's program, Robert Leahy, Head of Investor Relations.

Operator

Please go ahead, sir.

Speaker 1

Thank you. Welcome to Innovix Corporation's Q3 2024 financial results conference call. With us today are President and Chief Executive Officer, Doctor. Raj Talauri Chief Financial Officer, Farhan Ahmad and Chief Operating Officer, Ajay Marathi. Raj and Farhan will provide an overview, and then we'll take your questions.

Speaker 1

After the Q and A session, we'll conclude our call. Before we continue, let me kindly remind you that we released our Q3 2024 Shareholder Letter after the market closed today. It's available on our website at ir.inovix.com. A replay of this video call will be available later today on the Investor Relations page of our website. Please note that the shareholder letter, press release and this conference call all contain forward looking statements that are subject to risks and uncertainties.

Speaker 1

These forward looking statements are based on current expectations and may differ materially from actual future events or results due to a variety of factors. For a discussion of those factors that could affect our future financial results and business, please refer to the disclosure in today's shareholder letter and our filings with the Securities and Exchange Commission. All of our statements are made as of today, October 29, 2024, based on information currently available to us. We can give no assurance that these statements will prove to be correct, and we do not intend and undertake no duty to update these statements except as required by law. During this call, we will also discuss non GAAP financial measures, which are not prepared in accordance with generally accepted accounting principles.

Speaker 1

You can find a reconciliation of the GAAP financial measures to non GAAP financial measures in our shareholder letter, which is posted on the Investor Relations page of our website. I'll now turn the call over to Raj to begin. Raj?

Speaker 2

Thank you, Rob,

Speaker 3

and thank you all for joining us today. For our format today, I'll start with a recap of our recent results, some of our recent milestones and before I turn it over to Farhan for the financials and the outlook. I'll have a few closing comments and then we'll take your questions. Now we had a very productive Q2. To recap our recent achievements, first, we delivered a Q3 revenue of $4,300,000 above the midpoint of our forecast.

Speaker 3

We grew 13% sequentially and expect even further growth in the Q4. 2nd, we opened our Fab 2 in Malaysia. This was a really huge deal for us because numerous leading smartphone and IoT companies tour our facility. They're impressed by the quality of our first production lines and now they are even more confident in our manufacturing capability. 3rd, I'm pleased to announce that we executed a new agreement with a leading global smartphone OEM for the qualification of our battery cells and the late 'twenty five launch of one of their phone models as this would mark our first official entry into our smartphone market.

Speaker 3

Ramping Fab 2 on schedule and showing it to prospective customers was a very pivotal accomplishment for the company, which until now only made batteries from here in R and D headquarters in California. It's also a significant accomplishment that we shipped EX1M samples from Fab 2 just weeks after the grand opening consistent with our plan. Now the Agility line is fully operational and the initial yields in the Agility line are comparable to the final levels we achieved with our first line in California and with improvements expected from there. The high volume line is also on track to complete site acceptance testing in 2024, which is consistent with our timeline and start mass production for smartphones and IoT customers in late 2025. Now we are thrilled to announce today that a formal we formalized a strategic partnership with the 2nd leading smartphone OEM.

Speaker 3

Now this agreement outlines the key milestones that we are working together with them and upon meeting them, we are set to enter the smartphone market 25 with high volume production. I've said many times before that our first commercial smartphone deal would be the hardest. We still have a lot of work to do in passing the customer qualification process and ramping the high volume line, but we're doing that together with our customer and we expect our with our first expected customer. Now to further bolster our 2025 sales pipeline, we aligned on a production schedule with a leading IoT customer which includes a mass production purchase order. This partnership as well as the progress we're making on the EV space underscores our ability to diversify into high value sectors beyond just smartphones.

Speaker 3

Now I'm very pleased with our recent commercial success and believe the opening of Fab 2 has been a very helpful contributor. We're also getting benefit from the recent surge in AI enabled smartphones, which is further validating our strategy and driving significant pull for our products and the transformative leap in energy dense that we can provide. Now last quarter, I mentioned that 4000 to 5000 milliamp hour battery in smartphones in our pockets today could soon go to more than 6000 milliamp hours and beyond due to AI. Here we are just 3 months later, I report to you that our customers are now asking us for 7,000 milliamp hour smartphone batteries. Now why is this important?

Speaker 3

This is important because the smartphone size has not increased. So the industry will need higher energy density batteries to fit this increased capacity in the same space, which bodes very well for a company like Enovix, which works on producing high energy density batteries. As I mentioned earlier, we've already started shipping of EX1M. Now as the needs of our customers continue to increase, we're also launching EX2M as fast as possible. Now as I mentioned before, EX2M will increase their energy density on top of EX1M.

Speaker 3

The first samples the first sample shipments to select customers of EX2M are scheduled in Q4 and these are key also to accelerating our time line to full scale mass production in 2025 and beyond. We also completed the product definition and roadmap beyond E X2M reaffirming our commitment to pushing the boundaries of innovation and delivering industry leading solution to our customers across a wide range of industries. With that, I'll turn it over to Farhan for the financials.

Speaker 2

Thanks, Raj. All the relevant financial information is in the quarterly report in the shareholder letter, so I'll keep my comments short. For Q3, we delivered revenue of $4,300,000 which was above the midpoint of our guidance range. Non GAAP EBITDA came in at a loss of $21,600,000 above our guidance of range of loss of $23,000,000 to 29,000,000 and non GAAP EPS came in at a loss of $0.17 at the high end of our guidance range of loss of $0.17 to $0.23 We ended the quarter with roughly $200,000,000 of cash and equivalents And we had CapEx of about $19,000,000 $31,000,000 of cash used in operation during the Q3. Our balance sheet is strong and gives us runway well into 2026.

Speaker 2

Now, turning to the guidance for the Q4 of 2024, we expect revenue in the range of $8,000,000 to $10,000,000 and adjusted EBITDA loss of $19,000,000 to $25,000,000 and non GAAP EPS loss of $0.17 to $0.23 Now I'll turn back to Raj to close.

Speaker 3

Yes. Thank you, Farhan. As you can see, we made substantial progress in the 3rd quarter by opening our Fab 2, securing our most meaningful customer commitment to date. And the next major milestone this quarter on our journey to scale will be completing the site acceptance testing of our high volume line and shipping the first samples of EX2M to our customers. With that, we can go into questions.

Speaker 3

Operator?

Operator

We will now begin the Q and A session. Please note that this call is being recorded. Before we go live to questions, we are going to read the 2 most highly voted questions submitted by shareholders ahead of this call during the call registration. The first question is, what yields are we currently seeing on the Agility line? And when can we expect an update on HVM line yields?

Speaker 3

Yeah. Ajay, you want to take that?

Speaker 4

Yeah. Sure. So as we communicated with you all, the Agility line completed the SAT during the quarter last quarter. And we brought up the Agility line on the EX1M technology node at yields a little bit higher than where we left off here, closer to 80%. And the HVM line, which has identical kernels to the Agility line, is in SAT mode right now in Fab 2, and there's no reason to expect anything lower than what the Agility line was able to do.

Speaker 4

So we feel pretty good about these yields, how they're ramping.

Speaker 3

Yes. Thank you, Ajay.

Operator

The second question is understand the Enovix proprietary process is patent protected where applicable, but how long of a first mover advantage does Enovix have before you see competition begin utilizing silicone and batteries on a larger scale once Enovix and customers prove the technology works and there is a demand market? And does your arrangement with Group 14 Technologies afford Enovix exclusivity in the markets where you utilize their SCC55 material?

Speaker 3

Yes. Thank you for that question. Yes, as you alluded to, we have a patent protected process with significant amount of patents and more importantly significant amount of trade secrets and industry know how in not only how to manufacture high energy density batteries, but also the machines that actually we use to manufacture the batteries. As you as I have mentioned before, we first design the machines and the design the machines then make the batteries. So our intellectual property is in both areas.

Speaker 3

Our unique architecture of manufacturing the batteries allows us to use 100% active silicon. We are the first ones to use 100% active silicon batteries in this consumer market, and we are very excited by that accomplishment that the team has made. The competition that we've seen has been mostly people who use 5%, 10%, in the best case of SiC or SiOx, some form of silicon material doped on top of graphite. If you use any more than that, what we have seen is the battery continues to swell up and it the swelling cannot be controlled by traditional manufacturing process. We have a unique advantage there and that is why we feel strongly that we have this unique value proposition.

Speaker 3

As far as our agreement on with Group 14, we're working with Group 14. They provide great anode material. We also work with other suppliers of anode material that use silicon and some form of carbon. So we have multiple suppliers that we use based on the market, based on the end products and based on the requirements of the battery. So thank you.

Operator

We will now go to the queue. Our first question comes from Ananda Baruah with Loop Capital Markets. Please unmute your line and ask your question.

Speaker 5

Yes. Hey, guys. Thanks a lot. Yes, congrats on the new announcement and thanks for taking the question. Yes, 2 if I could.

Speaker 5

I guess I'll just start with the it's really a clarification around the announcements, Raj. So is is the the announced volume customer for December quarter 2025, Is that the new customer? Is that the new relationship or is that the prior relationship?

Speaker 3

Yeah. This is a new customer that we today. There is a commitment in the agreement that we made that once the battery is passed that we jointly agreed to that once the pass the qualification, we have commitment to launch in next year. The other customers we work with are also well along the way, and we hope to get more as the year goes by, just proving that the value of our technology is there for multiple customers in the smartphone market.

Speaker 5

I got it. I got it. That's that's very helpful. And, EX2, can you remind us, you know, which, which batteries you'll be going to market with next year, you know, at at volume, EXEX 1M, EX2M if it goes, you know, if everything goes well once you start getting samples out?

Speaker 3

Yeah. As I mentioned, EX1M is a battery that we sample to our customers, and people like the performance of the product, people like what they're seeing. They're giving us some feedback on things to tweak and update to better fit those particular smartphone models and we're continuing to work with the customers on that. EX2M is our next technology, which we will be sampling this year and we expect that to go to production in 'twenty six and we are working hard to get that accelerated also.

Speaker 5

Got it. That's helpful. Thanks so much. Appreciate it.

Operator

Our next question comes from Colin Rusch with Oppenheimer. Please unmute your line and ask your question.

Speaker 6

Thanks so much, guys. As you look at initial yields as well as the evolving specs from your customers and what's happening with pricing on batteries, can you talk a little bit about how those pricing dynamics are trending and how that rolls through into your target gross margins that you've previously communicated?

Speaker 3

Yes. We've started the pricing discussions now with our customers of this products that we're expecting to launch next year. We've also closed pricing with some of the other customers on the IoT space. We are continuing to be able to command the premium for our batteries because we provide much higher energy density and that's very valuable in premium tier smartphones, which is where we are focused on where the value we provide translates into value for the end customers. So our customers are able to give us that price premium because they're able to take advantage of the higher battery density.

Speaker 3

So we feel pretty good about it. As for the gross margins, we've mentioned in the last quarter our long term gross margin profile that we expect to get to as we get to these premium smartphones in the 50% range. And at scale, we still expect to get to that.

Speaker 7

Okay. Fantastic.

Speaker 6

And then About just $10,000,000

Speaker 3

I think Farhan

Speaker 2

would add to that. Yes. I just wanted to make sure that you got that it's cash gross margin of 50% and plus not just gross margin. And we like Raj said, we expect that like we can get there. And already in the market, what you see very clearly is that the batteries, which are higher energy density get a premium.

Speaker 2

And so we expect to get a premium as well. There's this market is sensitive to energy density. And for us to achieve our long term target, we have to get the EX2M types energy density and beyond and get to scale, like we said, and we expect that we can get those margins once it's good.

Speaker 6

Fantastic. Appreciate the clarification. And then in the guidance for Q4 and revenue in the $8,000,000 to $10,000,000 can you just break out what's coming from RouteJade and how much is coming off the Agility line and driving that revenue?

Speaker 2

Yes, it's mostly coming from Raujid. There's a small amount that is coming from the Agility line, but at this time, we are mainly sampling. And so the revenue contribution is mostly coming from Raujid.

Speaker 6

Appreciate it.

Operator

Our next question comes from Bill Peterson with JPMorgan. Please unmute your line and ask your question.

Speaker 8

Yes. Hi. Good afternoon, and thanks for taking the questions. Nice to see the additional announcements. I wanted to ask about sampling.

Speaker 8

So I guess how many of the top 8 smartphone OEMs have received the EX1 samples thus far? What's the initial feedback then? I think you're looking to sample 6 out of the top 8. Have you sampled the large Korean or the large US player? Are these pretty much all in China?

Speaker 8

And I guess are there other form factors or device types that you've also sampled in the quarter with similar technology?

Speaker 3

Yes. The Agility line, as I mentioned, we just got it up. And we have sampled some customers, and we'll continue to sample more and more. There is interest from many, many different people. And it's just we are trying to make them as quickly as I can.

Speaker 3

I can't really give you all the details of who are we sample to, it wouldn't be fair to say that. But I can assure you there's a lot of demand and we're trying to make them as quickly as we can. And maybe for a handover.

Speaker 2

Yes. No, I just want to say that we have sampled, like we said, the 2 customers that we have disclosed are top 5 OEMs in smartphones. So they are not like some tiny company. They are companies that are very prominent in the premier tier smartphones in China. And so that's something that we can tell

Speaker 4

you. Yes.

Speaker 3

That's what we are prioritizing first because that's where we see our highest demand.

Speaker 8

Okay. I guess on the commercial side, given your expectations with the new smartphone OEM announcement, plus I guess some early IoT production schedules. Can you give a sense of what kind of volumes you're expecting broadly in 2025? I mean, are these can these be in the millions, I guess, in the smartphone side? Or how should we think about volumes?

Speaker 3

Yes. It's very difficult to know exactly that. I think we will get more clarity as we move along. So as I mentioned last time, I think it's important to understand the process of how smartphone penetration happens, right? So we give them samples, they're going to test them, then we're going to get from them the specification of the exact battery size that they would like to use in the phone that's going to launch in late 2025.

Speaker 3

And that will usually come beginning of 2025. That's when they finalize what the model would be, what the size would be. Then we make that cell in our high volume manufacturing line. And they'll go through another set of series of tests within the phone model itself. And based on the performance and based on which model they're targeting and the volumes vary will vary based on which regions they launch and so on, at least initial ones.

Speaker 3

And then through 2026, you'll see them build up and go into more and more models. That's typically how the smartphone ramp works. They start small, but they keep going up.

Speaker 2

Yes. And the other thing I would just add, like Raj mentioned it earlier, though, we've always felt that the hardest part of the ramp is getting the 1st customer. Once you have the first customer, you can, you know, your value proposition to customer changes. Before that, the risk for customers is, hey, this is a battery that nobody else is using. And I if I use it and something goes wrong, then, you know, there's a lot to lose.

Speaker 2

If on the other hand, the best battery goes in a smartphone and it launches and and it's proven, then, you know, the equation changes. Then if you don't use it, then, you know, you are rest falling behind. So that's how we have approached. And, you know, it's very encouraging to see at least one customer, like, you know, has gotten over that hump and said that, hey, we build the batteries in their form factor. And if they meet the performance, that is in line with the expectation.

Speaker 2

And based on the initial samples, they feel good about engaging with us and with the intention of launching a phone in 2025.

Speaker 3

That's it.

Speaker 8

Thank you.

Operator

Our next question comes from George Gianurico with Canaccord. Please unmute your line and ask your question.

Speaker 9

Hi, everyone. Thank you for taking my questions. Just to maybe tack on to that the previous question. To the extent you wanted to fill your revenue pipeline additionally for next year, given how late we are in 2024 and how long it takes to qualify and get designed in, is there still potential if customers come to you that are testing your samples to fill the 2025 revenue pipeline between now and the end of the year or wherever that deadline kind of meets? Thank you.

Speaker 3

Yes. It's all going to be based on how quickly the batteries that qualify in the customers' products, right? That's most important thing people need to realize about this market. Batteries, people take very seriously on when they put it in a device. And the qualification process is very strict and takes a certain amount of time, a lot more stringent than semiconductors, for example, because of safety and so on.

Speaker 3

But I do believe that, we do a lot of the testing in house to make sure that what we're giving is what people really want and are safe. If things go well, it could be much faster. But we are planning that it will be late next year. But I will tell you one thing. First ones are the hardest with any customer because once you are a supplier that is vetted in their system and they've launched some batteries with us, the following models come much faster and much quicker.

Speaker 3

So I think that's the most important thing. So

Speaker 9

And maybe as a follow-up to that, does the same logic apply to additional IoT customers who could fill the revenue pipeline for next year? Thank you.

Speaker 3

In some IoT markets, the testing could be a little lesser, less stringent because, for example, in smartphones, customers want 800 to 1000 cycles. So to test 800 to 1000 cycles takes months because you can charge and discharge and charge and discharge 800,000 times. Some IoT markets, people only want 500 cycles because, the maybe the product doesn't last that long and not charged every day. They could be lesser. So in that one example where you could launch a product sooner because the testing cycle could be shorter.

Speaker 3

I'll give you another example. Like in a portable device like a smartphone, people do a lot of safety tests like a drop test, like a thermal abuse test and so on. If it's a larger portable electronics device, maybe that's not as important. So again, it all comes down to the nature of the device, the how many cycles it has to go through, how much testings the customers want to do and how the device is used. And that is what gets how quickly a product can go to production after we give them samples that qualify.

Operator

Our next question comes from Gus Richard with Northland. Please unmute your line and ask your question.

Speaker 10

Yes. Thanks for taking the question. Now that you're getting visibility into 2025 and given the mix you're expecting, what do you think the revenue potential for that line would be given the mix you're looking into both IoT and mobile?

Speaker 3

I think we mentioned before our line is capable of running at 13.50 UPH and that is for large size batteries. We mentioned roughly like 9,000,000 units at $10 is what we can get the line up to. But again, I think the gating thing is not so much the line, but the gating thing to how much revenue is the customer qualification timelines. And we take that very seriously, and we spend a lot of time on making sure the batteries are safe and the customers to go through all their tests for the first time around when we are the new supplier. But once we get there, I think the revenue will be much, much quicker.

Speaker 10

Okay. Got it. And then just thinking about the second line, I think you had talked about that starting production maybe at the end of next year. And I was wondering if those plans are still on track.

Speaker 3

Yes. The way we think about second line is this. Again, as we get more and more visibility through 'twenty five as the customer qualifications are going, for example, if you're getting into very high volume phone, we'll know that. And when we know that, we'll need to quickly start investing on the second line to build that up. And if it's a lower volume and then the next model is higher, we have probably have a little bit more time.

Speaker 3

So the whole and also we want to make sure that the second line is much lower cost than the first line. Ajay and his team have some great ideas on how to not only cost reduce the line, but make it faster. So all those things we take into account. And we'll give you more color through 2025 how we are building those lines in 20 6 and 20 7. Anything else you want to add, Ajay?

Speaker 4

Yeah. Just to add to what Raj just said, we are working, learning from the line number 1, the high volume line, where can we cost reduce these lines significantly. And we already said that that was the plan, and we are executing to that plan now to substantially reduce the line number 2. So we don't want to rush into ordering line 2, which is exactly a replicate of line 1 because then that would not be right. We need to cost reduce it, and we have a lot of good ideas which are actually in the works right now before we order the 2nd line.

Speaker 4

Yes. And many of those concepts, which will be in the line too, which cost reduces the line, have been tested through proofs of concepts, right, the POCs that we typically build. And yes, we are finishing that up before we are ready to order the Line 2.

Operator

Our next question comes from Gabe Daoud with Cowen.

Speaker 7

Hey, everyone. Thanks for the time. Maybe just going back to the order guide, could you maybe talk a little bit about what exactly has to happen from here to 4Q 2025? Obviously, they're going through a qualification process, but maybe some of the milestones that need to be achieved, whether it's specific targets on energy density or cycle life or fast charge capability? I know it may differ depending on specific model, but curious if there's any kind of brackets you could put around that.

Speaker 2

Yes. So the important milestones from now are in the Q1, we will get the dimensions from the customer. And based on those dimensions, we will make the samples. 2Q, we will ship to them. And 3Q, we expect to get the final order.

Speaker 2

Raj, is that right? Yes. So those are the milestones there for you.

Speaker 3

Yes. We do have clear targets on energy density and fast charge and cycle life. So we do have those targets from them and we are working with them to deliver those to them.

Speaker 7

Okay. And then, just a quick follow-up to that. So you expect to get the order in 2Q. And any kind of range on these specific models, what they do in terms of shipments a year, just to try to get a sense of what the actual size of the order could look like?

Speaker 3

Yes, I think I answered that question. It's hard to tell that now. We'll know more about it. I can tell you it's in the premium tier. That's where we provide most value and we'll give you more color as we get closer.

Speaker 7

Okay. Okay. Thanks, Raj. And then just quick follow-up. Any comments on capital needs and maybe options to bring in additional capital in the door if you think you need it?

Speaker 7

Thanks, guys.

Speaker 2

Yes. Thanks, Gabe. So you look like we have runway till 2026, and we will continue to evaluate more capital if we need it. Like as I've mentioned in the past, we may need more capital to get to profitability. And, you know, so at some point, we have to raise capital.

Speaker 2

There are 3 avenues open for the company, the capital markets, the governments, and the customers. And we are pursuing all of them and, you know, to see what makes the best sense for the company and provides the most efficient path with least amount of possible dilution while managing the risk for the business. So we will continue to evaluate that. And one big thing that we are very particular about is delivering on the milestones before we go and raise capital. So that's something that is also important to the company.

Speaker 7

Thanks, Farhan. Thanks, guys.

Operator

Our next question comes from Derek Soderberg with Cantor. Please unmute your line and ask your question.

Speaker 11

Yeah. Hey, guys. Thanks for taking the questions. Just regarding the smart glass opportunity for you guys, I'm curious how investors should think about the addressable market there, maybe relative to smartphones. I don't know if you could talk about that, the size of that market today versus what maybe you guys expect over the next 10 years or so.

Speaker 11

And then from a content standpoint, Raj, it sounded like these smartphone customers want a pretty sizable battery cell. But for the smart glass devices, what sort of capacities are those devices targeting?

Speaker 3

Yeah. Good question. So first, I wanted to kind of maybe add a little bit color to the requirements of the smart glass market versus the smartphone market. When you look at this AR or VR, XR as some people call it, our mixed reality headsets, The requirements or the draw on the battery is actually much, much higher than smartphones at any given point of time. And the reason for that is they don't have, like, standby modes like my phone is right now.

Speaker 3

These things are when they're on, they're on fully on and the processor is on, the memory is on, the display is on and your to get that real experience, the GPU is running full speed. So the power draw on the battery is very high and the batteries last very short period of time. And they're also smaller because you have to put them inside the glasses. So it's a market that's very ideally suited for our kind of batteries, which deliver high energy density even in small form factor. So that's a market we are really excited by.

Speaker 3

I've seen some industry reports. This will be multiple tens of 1,000,000 in the next few years, like 20,000,000, 30,000,000 units is what I saw in out years. I think this market is still being built out. I've seen demonstrations of the products. We announced a customer, I think, last quarter or the quarter before, I forget, that was interested in our product and then we are making custom sales for them.

Speaker 3

They look amazing. I think there's a lot of progress has been made in waveguide optics. So the experience you get is really, really good. And I expect a lot more customers to start making those products. Particularly with GenAI, you can use speech to navigate now and that's looking really, really good.

Speaker 3

And that also demands a lot of battery life. So in that sense, I think there'll be smaller batteries when they look like glasses, there could be bigger batteries when they look like ARVR headset. If there are form factors where the battery is on the side and you plug it in like a VisionPRO, those could be bigger batteries. If the batteries inside the head, they may be slightly different batteries. So I expect there to be multiple form factors of batteries in those kind of devices.

Speaker 3

But all of them have this need for high energy density in a small form factor. So something that suits well for us. So it's a market I'm quite personally quite excited by. It may take a little bit longer to become a really large market, but I think it's a good market for us. And the ASP is a market where we can get a very nice ESP premium, and I think we are seeing that in our first batteries that we quoted.

Speaker 11

Got it. And then as my follow-up, just regarding the announcement around the IoT customer, Some of the wording that's been used is mass production. I'm curious if you can sort of quantify what that means by mass production. Is it sort of a 1,000,000 battery units annually, something like that? Is there maybe something we should go off of?

Speaker 11

And then also I'm curious if you can speak to which kind of device that IoT device is? Thanks.

Speaker 3

Yes. Unfortunately, we are not at liberty to speak the device. I know this is a question I get often, which device, which customer. And I promise you, I'll work hard and trying to get names from the customer, see if you can mention them. Like you got to understand, when you're early stage company and when you get customer samples into these products, the customers are a little hesitant about really letting us speak to them, speak exactly what they are.

Speaker 3

But I would say that we are excited that it is something that will be in the market that you should be able to buy some of that. I know everyone's looking forward to that, but that's probably all we can say at this point in terms of who the customer is and how big it is.

Operator

Our next question comes from Sean Milligan with Janney. Please unmute your line and ask your question.

Speaker 12

Hey, thanks for taking the question guys. I'm hopping from another call, so sorry if you already answered this. But can you kind of go over the remaining CapEx to deliver the first auto line? And kind of maybe how that splits up in terms of like what's 4th quarter and what's first half next year?

Speaker 2

Yes. So most of the CapEx will be in this year. So we are funding for the line ourselves and we expect that the CapEx will be somewhere about $80,000,000 to $90,000,000 this year. And then for next year, we are expecting we are not expecting a lot for this line. It should mostly be done this year, maybe $5,000,000 or so might carry on to next year.

Speaker 2

And then next year, the CapEx should be fairly small till we get to the Gen 2 line. And when we are ready to order that, then we may have an uptick.

Speaker 3

But overall, the Okay. Is most of that Yes.

Speaker 2

Sorry, go ahead.

Speaker 12

How much of that is left to be spent of the $80,000,000 to $90,000,000 question?

Speaker 2

No, that's like next year is only like about $5,000,000 So you can look at the CapEx for this year, and we are expecting like about $80,000,000 to $90,000,000 for the year.

Speaker 12

Okay. And then as you start to order additional lines, how should we think about the like the payment splits? How much is on order? How should we think about that cadence?

Speaker 4

No. The next line is not on order. Again, like I said, we have been doing proofs of concepts of how to do this second line a lot more economical. And that's the only thing that we have spent on is POCs, actually proofs of concepts. And the way to think about line 2 is the target we are expecting where line 2, high volume line, line 2 will fall is roughly 60% of the line 1, roughly.

Speaker 2

Samin, do you mean to call you on?

Speaker 4

Yeah. So what we'll do is actually we'll manage the cash flow in such a way that the long lead time items we will order probably earlier on in the year 2025. And so the proofs of concepts will pan out through the year. And as we get closer to the end of the year, call it q 3, we would place orders for the remaining parts of the line. That's that's how typically and again, this is all going to be driven by the by how the demand shapes up and the profile of the demand.

Speaker 6

Okay. That's helpful. Thank you.

Operator

Our last question comes from Mark Shuter with William Blair. Please unmute your line and ask your question.

Speaker 13

Hi. Thanks, team. Congrats again on the second customer. We got more details in that engagement. So should we read this as more concrete or is this customer more eager than the other?

Speaker 13

Is there an opportunity here to kind of pit these 2 against each other in a race for qualification?

Speaker 3

I mean, every customer is a little bit different, Mark. And, I think, as you know, I have relationships with all of them. Every customer is a little bit different. Every customer is in a little bit different stage. I think that's the way you should read it.

Speaker 3

Our goal, of course, is to be a sizable player in the smartphone market. So it's just a question of who does first versus next. So that's probably the best way to describe it.

Speaker 2

Yeah. And I would just add to it, like, you know, like earlier also Raj mentioned and I mentioned that, you know, the first one is hardest and the equation changes. Once you get one, you know, it goes from push to pull. The first one is like you have to convince them and you have to cross all the hurdles. But once you get past that, from the next ones, it becomes a lot easier.

Speaker 3

Yes. And my experience, both at Micron TI and Qualcomm is we launched the first one, then pretty much most of the market tends to use the technology once it is differentiated and they see the value. So that's just the way the smartphone market works.

Speaker 13

Got it. Thank you both. Silicon has a slightly lower reduction potential and so a lower voltage profile. And I know smartphones are a high powered device with high voltage. I'm wondering if customers have brought this up.

Speaker 13

Is there any pushback in terms of the voltage profile? Or are they open to modifying the power management in the electronics? And many any conversation like that with your customers?

Speaker 3

Yeah. Yeah. We've had a lot of conversations with them, and, it's an area where we we work very closely with the other components in the ecosystem. For example, Qualcomm, mix processors and p mix, and, and we work with the customer and Qualcomm. So I think people have realized now that silicon is going to be in the smartphone market.

Speaker 3

So the PMICs have already made the adjustments to actually be able to get that last bit of energy from silicon. So which is what we've been doing through last year and we're pretty happy that that should not be a problem anymore.

Speaker 13

Got it. Thanks for the color.

Operator

We have one final question from Tony Stoss with Craig Hallum. Please unmute your line and ask your question.

Speaker 14

Thanks. Raj, I wanted to follow-up on your comment about the 7,000 milliamp batteries. I'm curious kind of when you think you could be producing something to that density? And also, what would the ASP be like in that? Are we kind of stuck in that $10 per battery ASP or would the higher densities markedly move up from that $10 number?

Speaker 3

Yes. I'll take the comment on Ben and I'll let Farhan talk about ASPs. He's pretty passionate about that. But yes, this is for launching next year. We are actually talking about, next year, 7,000 milliampere batteries.

Speaker 3

And I actually think it's going to keep going up if we can produce higher and higher energy, higher capacity batteries in the same footprint. I think there is still a lot more demand for energy, capacity in these smartphones because the applications we see now are just trying more and more power from the battery.

Speaker 2

Yes. So I would say that if you look at 5 to 5.5 milliamp hour or so, those batteries, like, is what we said, like, when we said that 11,500,000 units and 150,000,000 revenue, so about $13 in ASP would get you to our target revenue. And if you look not the our silicon batteries, but what's in the graphite silicon space, Those batteries are in the $10 to $12 kind of a range, the higher performing tiers based on a market analysis. And so, getting like a little bit of a premium to that is what we are expecting. And so and

Speaker 7

by

Speaker 2

the way, the commodity batteries are like 7, 8 kind of range. So already higher energy density batteries getting a premium is already validated and we because we will have a significant energy density advantage. So what we were basing is not that much off. Now switching to 7,000, it's a higher energy density and higher amount of material goes in. So it's fair to think that pricing should be higher.

Speaker 2

Exactly how much remains to be seen. It's probably too early to say because at that point, to the best of my knowledge, there's nobody else who's providing those batteries. So once we get there, we may have more ability to price and get a better price. But it'll definitely be higher than, you know, the what you're charging for 5 to 5.5 AMP ourselves today.

Speaker 14

Great. Thanks, Farhan.

Operator

There are no further questions at this time. With that, I'd like to turn the call over to Doctor. Raj Talari for closing remarks.

Speaker 3

Yes. Great quarter. And thank you all for patiently listening to us. And we'll talk to you next quarter. Thank you.

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