Factorial Energy Q3 2026 Earnings Call Transcript

Quartr
Provided by Quartr
November 10, 2026

Key Takeaways

  • Positive Sentiment: Factorial recorded its first customer revenue in Q3 2026—about $26,000 from initial drone-cell shipments—beating its prior 2027 timeline. Management expects more meaningful commercial revenue in 2027, though it has not provided a specific forecast.
  • Positive Sentiment: The company said its aerospace cells reached 450 Wh/kg, about 15% above the cells used in its record-setting drone flight. It is qualifying products with additional customers and sees demand potential as U.S. restrictions on certain foreign battery suppliers approach.
  • Positive Sentiment: Factorial is expanding manufacturing capacity and pursuing a capital-light model with industrial partners, including an MOU with SK On to evaluate production across its network. The company also said its pilot-line yield reached about 85%, while acknowledging that the figure excludes coating and that gigafactory-scale yields would need to be higher.
  • Negative Sentiment: Q3 gross loss was $1.8 million, largely reflecting an inventory write-down, and management said early production volumes and high material costs mean cells currently cost more to make than expected selling prices. Revenue is expected to remain modest and fluctuate until production programs ramp.
  • Positive Sentiment: Factorial lowered its 2026 non-GAAP operating-expense outlook to $36 million–$38 million from about $40 million and cut its capital-expenditure outlook to $10 million–$12 million from about $13 million. Some equipment payments may shift into early 2027, and the company expects higher spending in Q4 as costs move between periods.
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Earnings Conference Call
Factorial Energy Q3 2026
00:00 / 00:00

Transcript Sections

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Operator

Greetings, and welcome to Factorial's third quarter 2026 results conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce Brad Cray, Investor Relations. Thank you. You may begin.

Brad Cray
VP at ICR

Thank you, and good afternoon. With me today are Dr. Siyu Huang, Co-founder and Chief Executive Officer, and Richard Wei, Chief Financial Officer. Earlier today, we published our third quarter shareholder letter on the investors section of our website at ir.factorialenergy.com. The company uses its website to disclose material non-public information and to comply with its disclosure obligations under SEC Regulation FD. We encourage investors to monitor the site and sign up for email alerts. Today's discussion contains forward-looking statements within the meaning of applicable security laws, including statements regarding industry trends, our 2026 outlook, the timing and amount of commercial revenue, manufacturing plans, partnerships, technology development, business plans, and milestones. Actual results may differ materially. Please review the risk factors described in our quarterly report on Form 10-Q for the quarter ended September 30, 2026, filed today, and in our other filings with the SEC.

Brad Cray
VP at ICR

Factorial disclaims any obligation to update forward-looking statements except as required by law. During this call, we will refer to non-GAAP operating expenses, a financial measure that is not prepared in accordance with generally accepted accounting principles. We define non-GAAP operating expenses as total operating expenses excluding depreciation and amortization, stock-based compensation, the previously disclosed legal judgment, and for 2025, the loss and impairment on lease termination, all of which are reconciled in our shareholder letter. Beginning this quarter, non-GAAP operating expenses no longer exclude non-cash lease expense. Management uses this measure to plan and evaluate the ongoing costs of operating the business. It has limitations, should not be considered in isolation, may not be comparable to similarly titled measures used by other companies, and is not a substitute for the most directly comparable GAAP measure. A reconciliation to GAAP operating expenses is included in our shareholder letter.

Brad Cray
VP at ICR

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

Siyu Huang
Siyu Huang
Co-Founder and CEO at Factorial Energy

Thank you, and good afternoon, everyone. Factorial's first full quarter as a public company delivered a moment years in the making. We recorded our first strong customer revenue, well ahead of the 2027 timeline we set. We are now supplying cells that power real products for paying customers. In just a few months, aerospace took us from sampling to system integration, to a world record, to a commercial order, and recognized revenue. This speed was built on years of development work with our automotive partners. We have proven our path, partnership, system-level validation, then order. Aerospace is the first proof point, and automotive is next, with a longer runway and a far greater opportunity. We have always planned to go market by market, starting where customers pay for performance and make decisions quickly. Right now, that is drones and aerospace.

Siyu Huang
Siyu Huang
Co-Founder and CEO at Factorial Energy

We also see few large battery makers competing for drone batteries today, as suppliers from FEOC, which is Foreign Entities of Concern, face growing restrictions in the U.S. That leaves room for a new supplier. Our first revenue came from the aerospace order we announced in July from a leading U.S. drone maker. We began delivering cells under that order this quarter. A test flight shows what a cell can do. A purchase order shows what it is worth to a customer. In July, we formed a strategic partnership with Tulip Tech, following customer tests that shows more than 30% longer range with our solid-state and lithium metal batteries, in part due to a 20% reduction in battery weight before any engineering optimization.

Siyu Huang
Siyu Huang
Co-Founder and CEO at Factorial Energy

Also in July, a drone built by Titan Dynamics and powered by our lithium metal FEST cells set a world record for flight duration in Group one drones, the lightest drone group, up to 20 pounds, at the Game of Drones testing event at Edwards Air Force Base in California, with 521 minutes in the air, covering roughly 300 mi. In August, our solid-state and lithium metal cells powered the winning aircraft in a DARPA Lift Challenge, which carried a payload of nearly four times its own weight. For drone makers, battery performance is one of the fastest levers to better mission capability. These results give customers independent, real-world proof that our cells deliver it as they move from testing towards production. From here, we expect revenue to grow in three ways. The first is more customers. We are working to qualify our aerospace products with additional customers.

Siyu Huang
Siyu Huang
Co-Founder and CEO at Factorial Energy

Starting in October 2027, the Department of Defense will restrict batteries from named FEOC, or Foreign Entities of Concern, manufacturers. Qualifying new cell makers takes months, so drone makers are picking their suppliers now. Our U.S. headquarters and our fabrication in the United States and South Korea align with that shift. The second is better cells. In a drone, energy density decides how far it flies and how much it carries. Last quarter, we said we expected our drone program cells to move towards approximately 450 W hour per kilogram by year-end. We have achieved 450 W hour per kilogram as of today, about 15% higher energy density than the cells that powered our world record flight this year. And we continue to target further improvement next year. That work builds on the FEST B samples we delivered to Mercedes-Benz, which came in about 390 W hour per kilogram.

Siyu Huang
Siyu Huang
Co-Founder and CEO at Factorial Energy

It shows how much synergy that our automotive program is to our high-spec applications. The next job is to carry those gains from development cells into production cells, add consistent quality, because that is what turns the performance lead into orders. Independent testing, including nail penetration, crush, and thermal tests, has confirmed the safety of the FEST cells we have delivered. Solstice is our all-solid-state battery platform with no liquid inside. We have built Solstice cells as large as 40 amp-hours and delivered them to partners for validation. Separate from the drone program target, it is designed for up to 450 W hour per kilogram, and it is enhanced thermal stability when compared to conventional lithium-ion battery cells. That makes it a fit for robotics, space systems, and other uses that need longer cycle life and high thermal stability.

Siyu Huang
Siyu Huang
Co-Founder and CEO at Factorial Energy

The third is automotive, a much bigger market that moves on a longer timeline. It follows the same path as aerospace, partnership, system-level integration, and commercial order. Over the years, our work there has grown from one vehicle to several across brands and regions. Mercedes-Benz put our cells on public roads in 2025. Stellantis built them into a Dodge Charger Daytona development vehicle this year. Right after quarter end, Stellantis showed the Peugeot RCZ Vision concept car with a solid-state battery developed together with Factorial. Our next major milestone in automotive is a production uptake agreement with a mainstream automaker, building on the supercar order we received in January. An agreement would set us up to ramp towards volume production by the end of the decade. This is how we are different. Partnership, system-level integration, to commercial order. Each step takes years of effort.

Siyu Huang
Siyu Huang
Co-Founder and CEO at Factorial Energy

Many companies have technologies on the paper, in a lab, but having a claim on a performance is different from having announcement of partnerships with leading customers with substantial investment and support over the years. Having just partnership is different from having those partners building the vehicles on the ground and in the air, not only just functioning, but set the world record. Having those system integration for an innovative product is different from having a commercial order. We are not just living on a promise, but the track record. We shared that we will have the first revenue by 2027, and we delivered in Q3 2026. Today, we built cells on our pilot line in South Korea and at our headquarters near Boston.

Siyu Huang
Siyu Huang
Co-Founder and CEO at Factorial Energy

Those lines have shipped thousands of large-format cells to automakers for testing, and our line in South Korea can switch between the lithium metal and silicon version of FEST. Next, we are expanding our own lines with FEST by end of 2027 and Solstice by the end of 2028. The new FEST line is being designed to make commercial cells built to the performance requirements of aerospace and physical AI applications. Then we plan to scale through partners. We designed FEST so that a line can reuse up to 80% of the equipment in conventional lithium-ion line. That lets us grow through our partners' existing factories rather than new ones. It also avoids much of the cost and environmental impact of our new construction.

Siyu Huang
Siyu Huang
Co-Founder and CEO at Factorial Energy

In July, SK On, one of Korea's leading global battery manufacturers, signed a memorandum of understanding with us to jointly evaluate producing our battery technologies across its global manufacturing network. SK On is our second significant industrialization partner this year, which is major progress towards our fabless business model. It has more than 200 gigawatt-hour of annual production capacity worldwide, including about 100 gigawatt-hour in the U.S. On the supply chain side, in September, we signed a joint development agreement with Mitsui Kinzoku, a leading manufacturer of sulfide solid electrolyte, to help industrialize Solstice. Its A-SOLiD electrolyte is advancing towards mass production at a dedicated plant in Saitama, Japan. This builds on our partnership with POSCO Future M, a leading cathode and anode materials provider in Korea.

Siyu Huang
Siyu Huang
Co-Founder and CEO at Factorial Energy

With Mitsui Kinzoku joining POSCO Future M, we now have partners for all three key active materials of Solstice, which position us to move Solstice to scale. We're also working with Philenergy, a leading Korean maker of battery stacking and assembly equipment, and one of our investors to build out the manufacturing infrastructure for Solstice. Our partnership coalition, led by Factorial, is designed to match the scale of today's largest cell makers through a fabless model. We believe the market will divide into designers and contract manufacturers. Our innovation extends beyond materials and cell technology to manufacturing engineering, and we bring that expertise to our partners' line to raise yield and quality. Partners can supply manufacturing capacity. The know-how to make solid-state battery work reliably at scale is hard to come by, and that is what we bring, backed by more than 150 patents and patent applications.

Siyu Huang
Siyu Huang
Co-Founder and CEO at Factorial Energy

On cost, our work covers manufacturing, materials, and the supply chain. In manufacturing, yield has a large effect because every scrap cell adds to the cost of the good ones. While we began production of our first technology, yield was low. Our pilot line has since demonstrated yield about 85%, compared with the 70%-80% the state-of-the-art lithium-ion battery pilot line typically targets. With everything else held equal, that improvement has cut the cost of every battery cell by more than 80%. Solstice's dry cathode process also uses less energy and avoids the volatile organic compounds that come with solvent-based processing. In materials, our lithium metal cells follow a different cost curve from silicon anode cells. With silicon anodes, more energy density takes more silicon, and the cell gets more expensive. With lithium metal, more energy density comes from a thinner anode, which means less material.

Siyu Huang
Siyu Huang
Co-Founder and CEO at Factorial Energy

Over time, we believe that can make our lithium metal cells less expensive than silicon anode cells. And because neither platform needs rare earth metals, we believe our cell costs can approach that of lithium-ion and become competitive as volume and our supply chain grow. In the near term, we're focused on holding yield as volume rise, qualifying our drone products with more customers, and moving Solstice towards industrialization with POSCO Future M, Mitsui Kinzoku, Philenergy, and our manufacturing partners. For now, we see significant opportunities in physical AI, automotive, and energy storage. With that, Richard will take you through the numbers and our outlook.

Richard Wei
Richard Wei
CFO at Factorial Energy

Thank you, Siyu, and good afternoon, everyone. Our revenue milestone in the quarter represents an early step toward a much larger opportunity. The full detail is in the letter, so I will focus on how this business is built to grow and how we plan to generate attractive returns from that growth. The opportunity ahead of us is enormous. The IEA and McKinsey project that global battery demand will grow significantly by 2030 to several terawatt-hours. At gigawattfactory scale, we are built to grow with that demand through our industrialization partners' capacity. In the high-specification market, we are expanding with a mix of our own capacity and our partners. To serve our first customers, we are expanding fast by the end of 2027 and Solstices by the end of 2028. Both are on track. Revenue follows the same logic.

Richard Wei
Richard Wei
CFO at Factorial Energy

In high-spec markets such as aerospace, robotics, and supercars, we sell finished cells supplied from our own lines within our current capital plan and supplemented by contract manufacturer cells where appropriate. In automotive, the much larger market, we expect our industrialization partners to contribute installed manufacturing capacity, and we see two ways to earn revenue from it, contract manufacturing and joint manufacturing. In contract manufacturing, partners manufacture cells to our design under contract, and we earn revenue on those cells. In joint manufacturing, partners license our technology and make cells themselves. Licensing generates less revenue per cell than contract manufacturer cells, but we expect it to carry higher margins and require little of our own capital. Separately, we expect to earn revenue from supplying key materials and from engineering services. The third quarter is a starting point.

Richard Wei
Richard Wei
CFO at Factorial Energy

Revenue was approximately $26,000 from our first drone shipments under the aerospace order we announced in July. Gross loss was $1.8 million. Nearly all of it came from a write-down of inventory. During the quarter, we built up inventory ahead of orders to support near-term demand. Those cells are on hand and available to sell. At these early volumes, our fixed costs are spread over relatively few cells, and material prices are higher, so each cell costs more than we expect to sell it for. We carry the cells at what we expect to receive when we sell them and record the difference as a cost. The size of the write-down largely reflects how much inventory we built up.

Richard Wei
Richard Wei
CFO at Factorial Energy

As production scales, we expect higher labor productivity, overhead spread across more units, and lower material prices to bring unit costs down, providing a highly compelling value proposition when compared to lithium-ion batteries. Non-GAAP operating expenses were $9 million for the quarter and $24 million year-to-date, mostly for research and development, sales and marketing, and the operating infrastructure behind the milestones Siyu described. Non-GAAP operating expenses also exclude $4.1 million related to the legal judgments we previously disclosed. GAAP income was $8.8 million this quarter. That came primarily from a change in fair value of warrant liability of $24.0 million, a non-cash gain which moves with our share price. Our nine-month GAAP net loss was $11.1 million. We now expect full-year 2026 non-GAAP operating expenses of $36 million-$38 million, below our prior outlook of approximately $40 million.

Richard Wei
Richard Wei
CFO at Factorial Energy

The lower range reflects continued spending discipline and, in part, production costs that are now recorded in inventory and cost of revenues instead of operating expenses. The range implies higher spending in the fourth quarter as the timing of some costs shifted into that period. We expect full-year capital expenditures of $10 million-$12 million, compared with our prior outlook of approximately $13 million, mainly reflecting the anticipated timing of milestone-based equipment payments, some which may move into early 2027. We expect more meaningful commercial revenue in 2027 as production programs begin. Until those programs ramp, revenue is expected to remain modest and to vary from quarter to quarter. We have reached our energy density target of approximately 450 watt-hours per kilogram in our aerospace program cells, and we expect to keep spending within our outlook and complete both line expansions on schedule.

Richard Wei
Richard Wei
CFO at Factorial Energy

We believe our balance sheet, disciplined operating model, and capital-light manufacturing approach give us the runway to carry out our value creation plan. With that, back to you, Siyu.

Siyu Huang
Siyu Huang
Co-Founder and CEO at Factorial Energy

Thank you, Richard. When we founded Factorial, we believed that the world would need fundamentally better batteries. This quarter, a customer paid us for cells for the first time, and we moved forward on each of the four priorities we started in June. These are early steps in building the energy layer, the battery infrastructure we believe will underpin the next era of aerospace, mobility, and physical intelligence. Our strategy has not changed. We proved our technology first in high-spec markets such as aerospace, where performance matters and customers adopt quickly, then carry that proof into mainstream vehicles and the wider mobility market towards the end of the decade. There's a lot left to do, and this team is ready for it. Operator, we're ready for questions.

Operator

Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question is from Derek Soderberg with Cantor Fitzgerald. Please proceed with your question.

Derek Soderberg
Derek Soderberg
Director and Senior Equity Research Analyst at Cantor Fitzgerald

Yeah. Hey, everyone. Congrats on the technical achievements as well as the commercial revenue. I am curious if you can quantify the level of firm orders and repeat demand you guys see for 2027. Similarly, can you talk about maybe which qualification milestones in the near term might accelerate that demand in 2027? Then I have a couple follow-ups.

Siyu Huang
Siyu Huang
Co-Founder and CEO at Factorial Energy

Yeah. Thank you so much, Derek. Again, thank you so much for being here today. In terms of the revenue, we have not disclosed the 2027 guidance yet, but we do see that as we ramp and after we get this initial order, we are expecting to receive more meaningful revenue as we scale. I think we are in our first customer and first few customer qualification process right now. We are potentially expanding to the next 10 customer qualification process. We are under active testing with multiple of them as well. I think we are anticipating that the customers will be moving faster and faster, and this is actually also surprising to us, and actually, this customer moved faster than what we expected, and that is why we were able to bring our first revenue ahead of our 2027 timeline.

Siyu Huang
Siyu Huang
Co-Founder and CEO at Factorial Energy

To your second question about qualification, I would say aerospace is our first one here, and we have just been in this market over the last few months since our IQT investment, that we also had our first partnership announcement to the first demonstration with system integration and validation to our commercial order. We see that now we have to replicate the same process with other customers, even with bigger customers in the aerospace market. On top of that, I would say the holy grail is really in the automotive space, and that is what we see actually will likely follow the similar pattern. As you know, we had our first partnership announcement back in 2021 with Hyundai Kia, followed by an investment with Mercedes-Benz, so it is the initial formation of the partnership coalition. Recently, we also had additional OEM release with the partnerships as well.

Siyu Huang
Siyu Huang
Co-Founder and CEO at Factorial Energy

But I think what was most exciting in that journey is that we also built one of the world's first solid-state battery vehicle with Mercedes last year, and it took on this record drive with 1,205 km with a single charge. This really speaks to the value as we come to the system-level validation, and we see that is going to be the next step to really focus on to bring this to the commercial order in the near future with automotive partners.

Derek Soderberg
Derek Soderberg
Director and Senior Equity Research Analyst at Cantor Fitzgerald

Got it. Super helpful. I also wanted to touch on manufacturing yield. Your pilot line is at 85% or above. I was wondering if you could maybe talk about the pace of improvement there that you have experienced and when we might be able to get to that 95% plus that the industry targets. Just on that, I was wondering if you could touch on that. Then I was curious if that 85% yield number, is that end-to-end yield for cells produced?

Siyu Huang
Siyu Huang
Co-Founder and CEO at Factorial Energy

Yeah. Our line in Korea right now, with the capability of doing test, is roughly about 85% yield over the course of last two years as we ramped up. Actually, the yield was really low. It is way below that. As you may know, this industry very well, yield is really important for the cost. As the line with 20% yield is roughly about four times of the cost of the yield of 80% system. The typical lithium-ion battery pilot line will run about 70%-80% yield. For our system, that we have already got to 85% yield, which is state of art. Here we are talking actually about assembly and formation. Only it does not include the coating process, but it includes the IQC, the incoming qualification process for coating already.

Siyu Huang
Siyu Huang
Co-Founder and CEO at Factorial Energy

I think for the gigafactory, you will typically expect to be at least 95% or above. With a pilot line of 80% plus yield, you are on a good path to get the system, like the gigafactory level efficiency.

Derek Soderberg
Derek Soderberg
Director and Senior Equity Research Analyst at Cantor Fitzgerald

Got it. Super helpful. Appreciate the detail. Then finally, just on the 450 W hour per kilogram achievement, can you talk about some of the other, I guess I call them trade-offs, just on cycle life, discharge power, you had mentioned-

Derek Soderberg
Derek Soderberg
Director and Senior Equity Research Analyst at Cantor Fitzgerald

some testing in various temperatures and things like that. What sort of cycle life, discharge power do you get with this level of density? Maybe talk about some of the applications that you guys are uniquely suited to go after. There's really not other technology like this, so just wanted to hear your thoughts on that. Thanks.

Siyu Huang
Siyu Huang
Co-Founder and CEO at Factorial Energy

Yeah. That's definitely a very discerning question. Apparently, for battery industry, it's all about a balancing act. It's all about the trade-offs. For our product, for this specific product that recently set the world record, we focused the development from that cell into an even higher energy and higher power cell. Initial cell, we literally brought it from the automotive world after 10 years of development. We just had a smaller format from the Mercedes-Benz vehicle cell, but with a similar chemistry, and put it on the drone, and it flew and got a world record. However, for this new system, we're targeting to really focus on range and power, because that's what really matters for the drone industry and for the aerospace that we're targeting in near term.

Siyu Huang
Siyu Huang
Co-Founder and CEO at Factorial Energy

A lot of them, they don't really require many cycle lives. I mean, it's not really long cycles that you're looking for those specific applications. That's why we have de-emphasized the cycle life requirements, which is apparently much smaller than automotive environment. But the discharging capabilities or the power capabilities could be five to 10 times as high as what is required for the automotive industry. So, this is where we've never seen before, but lithium metal cell has actually a very unique advantage on that, because for lithium-ion, especially like silicon and graphite lithium-ion batteries, you will have a natural compromise between energy and power. Usually, energy cells cannot deliver a high power, and a high power cell will have very limited energy. When you try to push both, the cost can become a big issue, even you're getting remotely close.

Siyu Huang
Siyu Huang
Co-Founder and CEO at Factorial Energy

That's why we think that for this technology, you will be able to get to the energy density much quickly, because lithium metal is literally the lightest metal on Earth right now. At the same time, you can push for high power without the traditional physical limits that the lithium-ion battery are having.

Derek Soderberg
Derek Soderberg
Director and Senior Equity Research Analyst at Cantor Fitzgerald

Super helpful. Really appreciate it.

Siyu Huang
Siyu Huang
Co-Founder and CEO at Factorial Energy

Yep. Thank you, Derek.

Operator

Our next question is from Colin Rusch with Oppenheimer. Please proceed with your question.

Colin Rusch
Colin Rusch
Managing Director and Head of Sustainable Growth & Resource Optimization Research at Oppenheimer

Thanks so much, guys, and congratulations on hitting the first revenue. Appreciate the detail on getting to the 450 W hours per kilo, but I want to get a better sense of how much, or what other advantages you might have at the pack level, given the chemistry and some of the performance metrics that you guys are able to deliver. Just want to get a sense of that relative to some of the other chemistries out there.

Siyu Huang
Siyu Huang
Co-Founder and CEO at Factorial Energy

Yeah, that's a great follow-up question to Derek's earlier question, actually. There was one thing I forgot to mention is about the temperature, and this is very relevant to your question, Colin, on the pack level. I think pack level lithium metal, we also see a great thermal stability and also conductivity compared with silicon. We are happy to share with you more details in a more deep dive technical discussion. But in high content silicon pack, usually you will see a lot of heat generation at high power level. For lithium metal, you don't see that because lithium is, in general, it's a much better heat transfer compared with silicon. That's why we think that, I would say, having high energy, high power without generating too much heat is definitely one advantage you can see at the pack level.

Siyu Huang
Siyu Huang
Co-Founder and CEO at Factorial Energy

On top of that, there's very similar integration effort needed for lithium metal compared with silicon. But I would say there is a potential cost reduction that's required for the system. This is not only just for aerospace, but also for automotive as well. So if we have a lighter cell and you need very much similar in terms of the integration for the drones, for example, it can reduce the weight of the drone and it can reduce the overall cost for the system. For automotive, it's another different story. No matter if it's lithium metal or if it's silicon, if you can reduce the total weight of the vehicle, you can roughly reduce about for every pound you are saving, it's roughly about $5 of saving, according to our customer feedback.

Siyu Huang
Siyu Huang
Co-Founder and CEO at Factorial Energy

This matters a lot when you are not only just reduce the weight of the battery itself, but also the supporting structure, like the steel and aluminum. Another important findings that we had recently is even about the power capability, because the lighter system, you might be able to have even better power. For example, we had some recent discussion with motorcycle companies, and they even shared that typically they will require very high power discharge. But when you have a lighter system, you don't even have to have extraordinary high power compared with traditional vehicles. So I think the lighter vehicles can also lead up to a much higher power and longer distance performance.

Colin Rusch
Colin Rusch
Managing Director and Head of Sustainable Growth & Resource Optimization Research at Oppenheimer

Excellent. That's super helpful. As you get into proper commercialization here with customers, can you talk about the customer strategy and the sequencing here? Obviously, you are targeting a handful of different applications and different size orders, and certainly the commentary around automotive sales cycle and design cycle is, I think, well understood. But I want to think about how many customers you are working with, order of magnitude on that, and how those folks move through the sales pipeline into the production ramp as you get into this in a little bit more robust way next year.

Siyu Huang
Siyu Huang
Co-Founder and CEO at Factorial Energy

We have been in a long term true believer of starting with small and small market, but with nimble and faster adoption of new technologies. That is why we define this aerospace and physical AI and all this high performance market as high spec market, even back in 2020 and early stage of the company during COVID time. That was a name that we initially defined ourself as high spec market. As part of this ramp-up, we believe that in the near term, in an intermediate term, automotive will be a real market for us to tap into. It does have a commercial demand, and automakers are willing to spend a lot of capital, especially in the early days, to support all of this development. Also, surprisingly, they were very supportive for us to get into the high spec market to begin with.

Siyu Huang
Siyu Huang
Co-Founder and CEO at Factorial Energy

They say this is a strong validation in what they are trying to do, and especially with a cell chemistry that is almost the same as what they are developing as of today. So in terms of pipeline, in our drone and aerospace market, we see that this is a much more fragmented market, not like automotive, right? If you grab the top five automakers, they are probably 50% of the market already. But for drone, it is much more fragmented. So I think we are going to, first of all, find a few key customers or the key opinion leaders in the market and crack the code, right? That is what we are starting to build first, and that is why we are working with this U.S. leading drone maker to build that initial success.

Siyu Huang
Siyu Huang
Co-Founder and CEO at Factorial Energy

Then we will launch with volume, because this cell is commercial ready and we are scaling with volume.

Siyu Huang
Siyu Huang
Co-Founder and CEO at Factorial Energy

I think this process we see typically takes anywhere between nine months to a year to get to fruition. But I think it is going to be much faster than automotive. When it comes to automotive qualifications, it is also going to be experienced the same process, where it takes three-step process. Number one, partnership formation. Number two is system integration. Then the number three is commercial order. It is a much longer journey, but has much bigger potential in that market. I think we have been enjoying one of the fast advantage among all the solid state players in the U.S. that with Mercedes, Stellantis, Hyundai, Kia, they are already more than 25% of the global market outside of China. We just also onboarded a new JDA partner, and that is from Europe as well.

Siyu Huang
Siyu Huang
Co-Founder and CEO at Factorial Energy

I think we are looking at a very significant part of the automotive market, even up to 30%, 40%. So this is something we think we have a great pipeline today. We also have done vehicles across two continents in the U.S. and in Europe. We launched the first European solid state battery vehicle last year with the record drive. Also, we launched the first vehicle in American soil with Stellantis this year. Then we had another recent announcement with Stellantis about Peugeot. So I think all three vehicles are really good starting point about the validation, which is second stage we see.

Siyu Huang
Siyu Huang
Co-Founder and CEO at Factorial Energy

It's very important for them to have a tangible aha moment to say, Oh, that actually works. We have to move towards the final stage of uptake, and that's where the fun things will start with all the manufacturing and partnership. I think the recent announcements with SK On in this quarter is also very important. This is the second joint manufacturing partner we have announced this year, and this definitely paved the way for the manufacturing capabilities with more than 200 gigawatt-hour globally in both U.S. and Europe. I think the next stage is really to focus on the manufacturing and reduce the cost for manufacturing. That's where the supply chain partnership matters a lot.

Siyu Huang
Siyu Huang
Co-Founder and CEO at Factorial Energy

That's why we had Mitsui Kinzoku, that's one of the most reputable solid-state electrolyte suppliers in the world, join the partnership with POSCO Future M and JR Energy earlier this year to help us scale the all-solid-state battery manufacturing. I think it's a really strong pipeline for us of both aerospace and automotive markets, and we're one of the very few companies that actually have strong partnership in both markets in the U.S.

Colin Rusch
Colin Rusch
Managing Director and Head of Sustainable Growth & Resource Optimization Research at Oppenheimer

Great. Thanks so much, you guys.

Siyu Huang
Siyu Huang
Co-Founder and CEO at Factorial Energy

Thank you, Colin.

Operator

Once again, if you would like to ask a question, please press star one on your telephone keypad. Our next question is from Mark Shooter with William Blair. Please proceed with your question.

Mark Shooter
Mark Shooter
Senior Analyst of Energy & Power Technologies Equity Research at William Blair

Hi, Siyu and Richard. Congrats on the quarter. We appreciate that—

Siyu Huang
Siyu Huang
Co-Founder and CEO at Factorial Energy

Thank you, Mark.

Mark Shooter
Mark Shooter
Senior Analyst of Energy & Power Technologies Equity Research at William Blair

—fabless business model that you talked about in the shareholder letter. Regarding your relationship with SK On, can you give us a little color on what shape do you expect this to take? Is this a licensing deal or a joint venture, or maybe just straight contract manufacturing? Is this more focused on drones or EVs?

Siyu Huang
Siyu Huang
Co-Founder and CEO at Factorial Energy

Oh, that's a brilliant question. We're a big fan of the fabless business model because we know this industry is bifurcating into the two segments. One is more on the designer, and the other one is on the contract manufacturer. We know that it's going to be very important to focus on the design, especially the competition of the battery industry is so fierce at this moment. When we see that for our automotive market, there are two main ways of doing this manufacturing with partners. One is called contract manufacturing, which we recognize other revenue, and we work with our contract manufacturer to produce the cell, which is something very similar to some of the semiconductor business. The other way is, we call it joint manufacturing. So it's a combination of licensing on top of the material supply and manufacturing engineering services.

Siyu Huang
Siyu Huang
Co-Founder and CEO at Factorial Energy

This is really tailored for certain customers, certain manufacturing partners have strong relationships with OEMs. Sometimes they are the daughter company, the wholly owned subsidiaries. I guess you can guess who they are out there. Those are really the ones that we're basically joint manufacturing with OEMs, right? So that's where we think there is a fairly strong case that we can build a licensing model. When it comes to the high-spec market, such as for aerospace, we see that it's a combination of our own manufacturing and contract manufacturing. Because first of all, the speed for this market is much faster. They don't have much patience to wait for three, four years to build a line, but they'd rather just to pick up the cell putting, the packing, and we can go, right? That's the speed of this market.

Siyu Huang
Siyu Huang
Co-Founder and CEO at Factorial Energy

I think with our own capabilities in Korea and in the U.S., we do have some volume already. We're expanding those capabilities, as Richard just shared earlier, in 2027, and for the FEST product and 2028 for Solstice. I think for that market, we'll start with our own manufacturing because also the capital to put into those build-out is relatively small too. So we could relatively turn around manufacturing production line much faster with relatively small capital and be able to ramp up in commercial order very quickly. But then the question is, do we have to do this forever? My answer is apparently no. If there is opportunity to leverage partners to build contract manufacturing capabilities, that would be definitely preferred. If we can use other people's money, why not?

Siyu Huang
Siyu Huang
Co-Founder and CEO at Factorial Energy

This is also win-win for our contract manufacturers because a lot of them, they don't want it to be a cell maker, or they don't really have the technology to be the cell maker. I think being able to leverage this and give them significant revenue at the same time for us to be able to ramp up our revenue without putting substantial capital would definitely be a preferred way in the long term.

Mark Shooter
Mark Shooter
Senior Analyst of Energy & Power Technologies Equity Research at William Blair

Thanks, Siyu. That's really helpful. To dig in a little bit more on that fabless business model, being able to easily convert lines for contract manufacturing or the joint manufacturing, that would be key. That's why we've seen such strong success with silicon anodes, because there is that drop-in replacement for graphite. The FEST system is flexible, where you can either use silicon or it can be tailored for lithium as well, or lithium metal, I mean. With lithium metal requiring a bit more development in that commercial scale equipment. Can you give us some color on the differences between scaling those two, whether if you're looking at a silicon anode versus lithium metal, either anode-less or not? Does that impact what chemistry you'll commercialize first, and are the partners skewing one way or the other?

Siyu Huang
Siyu Huang
Co-Founder and CEO at Factorial Energy

Absolutely. You are definitely the chemist in the room. Very much appreciate this question, Mark. Yes, there is a difference for the silicon versus lithium metal. Even in our system, our existing FEST system, with the lithium metal, we have up to 80% compatibility with traditional lithium-ion battery line, and silicon potentially can have even more compatibility, which I think is even better when it comes to contract manufacturing. We have not yet disclosed about our line expansion plan in detail. I would say for those two systems, to some extent, I think as long as we manage the raw material to be compatible, there is a potential to have still like 80% compatibility. One thing I do also wanted to mention is that, I think it was Derek asked the question earlier, from the cell manufacturing, there are three steps, right? Coating, assembly, formation.

Siyu Huang
Siyu Huang
Co-Founder and CEO at Factorial Energy

Yes, lithium does have a little bit difference in the assembly, but the coating and the formation are pretty much the same. You can use the same equipments. I think that's something where I would say there are also, of course, as you noted, there are different type of lithium metal technology too. In the end day, I think, first of all, the coating, which is one of the most expensive part of the manufacturing, should be quite commoditized, and we could leverage it for our existing manufacturing capabilities. I'm sure we'll release more details as we're moving along the next few weeks into the next quarter. I think there is an even higher capability for the silicon ramp-up.

Siyu Huang
Siyu Huang
Co-Founder and CEO at Factorial Energy

I think for our aerospace market, we're likely going to be focused more on the lithium metal technology to begin with, because that's really the holy grail. In the automotive market, I think we see a combination of interest of both. I would say, like even between FEST and Solstice, there is interest for both, like silicon and lithium metal chemistry. Since we haven't shared in more details, I would say it's roughly about half and half in terms of our customer interest at this moment.

Mark Shooter
Mark Shooter
Senior Analyst of Energy & Power Technologies Equity Research at William Blair

That's very helpful. Thanks, Siyu. Just one more if I can fit it in. Just touch on that last point. The demand for FEOC-compliant cells, especially in the drone market, is high, and there's a timing component where a cell today is very important, and the performance of that cell may not even need to be off-benchmark. It's just because the availability of supply is so low. I'm wondering if there's a trade-off or optimization of, okay, I can make silicon cells faster and easier today, but they're not as good as the performance of the lithium metal or anode-less or solid state, but customers prefer cells today versus waiting two years. Have you seen anything like that in your engagement with customers?

Siyu Huang
Siyu Huang
Co-Founder and CEO at Factorial Energy

Mm-hmm. Yeah, that's a great question. I think, actually, I don't see much difference between the time to market for the non-FEOC supply chain for either silicon or lithium metal. For us specifically, because we have this one of the strongest partnership coalitions with POSCO Future M, which is one of the largest material maker in Korea, and they are also the only one to produce both cathode and anode materials, and also a few other partners such as LG Chem over the years, and even SungEel HiTech on the recycling side. So I think we have a really strong position in having access to one of the most advanced material supply chain globally. That's why, and we also have been focused on innovating products ourselves internally. So this gave us almost the same time in developing NDAA-compliant cell for silicon versus for lithium metal.

Siyu Huang
Siyu Huang
Co-Founder and CEO at Factorial Energy

I think I know what you're asking here is more for a lithium metal supply chain. We do have a solution for that, and I will be able to share with you hopefully by the end of next quarter.

Mark Shooter
Mark Shooter
Senior Analyst of Energy & Power Technologies Equity Research at William Blair

Great. Thank you very much.

Siyu Huang
Siyu Huang
Co-Founder and CEO at Factorial Energy

Thank you.

Operator

Our next question is from Eric Goldstein with Water Tower Research. Please proceed with your question.

Eric Goldstein
Managing Director at Water Tower Research

Hey. Good afternoon, guys, and congrats on all the accomplishments this quarter. I just had a couple of other questions. You put together a pretty impressive list of partners. I was just wondering, how do you manage all the partners? Do you have employees that are co-located at their facilities? Are they co-located in your facilities? Where it makes sense, are you able to share advancements that are made with your partners across your entire ecosystem?

Siyu Huang
Siyu Huang
Co-Founder and CEO at Factorial Energy

That's a great question, Eric. Thanks for dialing in today. Yeah, our partnerships, especially with our customers and suppliers, have been growing constantly over the course of last few years with Mercedes, Stellantis in early days, and Hyundai, Kia, and even with VW's recent onboarding. It's definitely a really strong coalition together. But I think we have had a very clear firewall on the technology and our trade secrets internally with our partners. I think, I would say all of our partners have been very respectful for our technology too. We haven't really have to have the partner to come in. Of course, when it comes to, say, automotive offtake, it will be a different story. You'll have quality people getting to your room. That'll be a different story. But I think at this stage, and also with our drone customers, they're pretty hands-off at this moment.

Siyu Huang
Siyu Huang
Co-Founder and CEO at Factorial Energy

And what we also realize that usually when you have big OEMs or drone customers sitting in your room before you receive offtake, that means that something's going wrong. I think fortunately, we don't have to have that issue. But I think we do have very close collaborations with our automotive partners. We actually had multiple interviews and even co-presentations in conferences, in press releases together. I think a lot of people didn't realize how closely the relationship is held with each other. From the earlier this year, we announced the three partners across three continents with KULR in the U.S., that's a NYSE publicly listed company for drone and aerospace integration, and with Tulip, as you know from the name, it's from Netherlands, and JR from Korea. So those three companies are across three continents.

Siyu Huang
Siyu Huang
Co-Founder and CEO at Factorial Energy

And just over the course of last few months with the world record, and that we set with the Game of Drones event, and even with partners with the DARPA Robotics Challenge and all those different competitions, and those partners have helped a lot in this process. Sometimes we do visit their facilities, and they also visit us. But I think it's very friendly conversation, and then we also keep a little bit healthy distance with each other.

Eric Goldstein
Managing Director at Water Tower Research

Hmm. Okay, great. Just a couple others. The SK On MOU, are there any milestones that would turn that into a definitive agreement?

Siyu Huang
Siyu Huang
Co-Founder and CEO at Factorial Energy

Yeah, we actually have a lot of milestones within MOU. Apparently, I don't have authority to disclose it as of today.

Eric Goldstein
Managing Director at Water Tower Research

Okay.

Siyu Huang
Siyu Huang
Co-Founder and CEO at Factorial Energy

But I would say just from my perspective, from the company's perspective, our next big milestone is really the offtake from OEM. I think that's really the one that we're looking in to build beyond those nitty-gritty small detailed milestones that we signed in a MOU. I think that's going to be a big driver to bring everything together.

Eric Goldstein
Managing Director at Water Tower Research

Okay. Just one for Richard. It looks like the cash burn in the third quarter was a little higher than what it had been in the first half of the year. I'm just wondering how you're thinking about the fourth quarter. Do you expect cash usage in the fourth quarter to be similar to the third quarter?

Richard Wei
Richard Wei
CFO at Factorial Energy

We provided guidance for the full year, about $36 million-$38 million range. That's on a non-GAAP basis. I think you could deduce what the Q4 number should be based on that. We'll continue to build inventory.

Eric Goldstein
Managing Director at Water Tower Research

Okay. Just the last one, the $4 million legal judgment, was that paid out in the third quarter?

Richard Wei
Richard Wei
CFO at Factorial Energy

That was paid out in the fourth quarter.

Eric Goldstein
Managing Director at Water Tower Research

In fourth quarter? Okay.

Richard Wei
Richard Wei
CFO at Factorial Energy

Yep.

Eric Goldstein
Managing Director at Water Tower Research

Thank you.

Operator

We have reached the end of the question and answer session. I would like to turn the floor back over to Siyu Huang for closing comments.

Siyu Huang
Siyu Huang
Co-Founder and CEO at Factorial Energy

Thank you all for joining us today and for your thoughtful questions. It means a great deal to me and to our team to share this journey with you. We look forward to updating you next quarter in the new year. If I don't see you before the new year, happy holidays, and we're grateful for your continued support of Factorial.

Operator

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thanks for your participation.

Executives
    • Siyu Huang
      Siyu Huang
      Co-Founder and CEO
    • Richard Wei
      Richard Wei
      CFO
Analysts
    • Brad Cray
      VP at ICR
    • Derek Soderberg
      Director and Senior Equity Research Analyst at Cantor Fitzgerald
    • Colin Rusch
      Managing Director and Head of Sustainable Growth & Resource Optimization Research at Oppenheimer
    • Mark Shooter
      Senior Analyst of Energy & Power Technologies Equity Research at William Blair
    • Eric Goldstein
      Managing Director at Water Tower Research
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