SES AI Q2 2026 Earnings Report

SES AI EPS Results

• Actual EPS: -$0.04
• Consensus EPS: -$0.04
• Beat/Miss: Beat by +$0.00
• One Year Ago EPS: N/A

SES AI Revenue Results

• Actual Revenue: $5.07 million
• Expected Revenue: $5.60 million
• Beat/Miss: Missed by -$528.00 thousand
• YoY Revenue Growth: N/A

SES AI Announcement Details

• Quarter: Q2 2026
• Date: 8/11/2026
• Time: After Market Closes
• Conference Call Date: Tuesday, August 11, 2026
• Conference Call Time: 5:00PM ET

SES AI (NYSE:SES) engages in the development and production of high-performance Lithium-metal rechargeable batteries for electric vehicles, electric vehicle take-off and landing, and other applications. The company was founded in 2012 and is headquartered in Woburn, Massachusetts.

SES AI Q2 2026 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Q2 revenue increased more than 40% year over year to $5.1 million, with contributions from ESS, drone cells, materials and Molecular Universe; management reaffirmed 2026 revenue guidance of $30 million–$35 million.
• Positive Sentiment: Gross margin improved to 22.6% from 18.1% in Q1, driven by higher-margin international ESS sales, pricing discipline and lower cell costs from broader sourcing enabled by Edge Box technology.
• Positive Sentiment: Drone demand appears strong, with the Korea facility expected to reach 1 million NDAA-compliant cells annually in September; the company says its current pipeline exceeds that capacity and could support orders into 2028, prompting evaluation of additional capacity.
• Positive Sentiment: SES highlighted commercial expansion opportunities through Sol-Ark certification for residential ESS, potential data-center solutions, and Molecular Universe deployments; materials discovered through the platform have entered pilot commercialization, while several battery companies are evaluating its software and autonomous-lab offerings.
• Negative Sentiment: Despite improved margins and a 26% year-over-year reduction in operating expenses, the company posted a $17.8 million GAAP net loss and a $13.1 million non-GAAP loss, with the non-GAAP loss widening sequentially because of lower revenue and a legacy-contract bad-debt provision.

Presentation

[Operator]

I will now hand the conference over to Kyle Pilkington, Chief Legal Officer. Kyle, please go ahead.

[Kyle Pilkington, Chief Legal Officer at SES AI]

Hello, everyone, and welcome to our conference call covering our second quarter 2026 results. Joining me today are Qichao Hu, founder and Chief Executive Officer, and Ray Liu, Chief Financial Officer. We issued our shareholder letter just after 4:00 P.M. today, which provides a business update as well as our financial results. You will find a press release with a link to our shareholder letter and today's conference call webcast in the investor relations section of our website at ses.ai. Before we get started, this is a reminder that the discussion today may contain forward-looking information or forward-looking statements within the meaning of applicable securities legislation. These statements are based on our predictions and expectations as of today. Such statements involve certain risks, assumptions and uncertainties, which may cause our actual or future results and performance to be materially different from those expressed or implied in these statements.

[Kyle Pilkington, Chief Legal Officer at SES AI]

The risks and uncertainties that could cause our results to differ materially from our current expectations include, but are not limited to, those detailed in our latest earnings release and in our SEC filings. On this call, we will discuss non-GAAP financial measures as a supplement to our GAAP results. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles but are intended to illustrate alternative measures of the company's operating performance that may be useful. These non-GAAP measures should not be considered in isolation or as a substitute for any GAAP measure, and our definitions may differ from those used by other companies reporting similarly titled measures. Reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures can be found in our latest earnings release. With that, I will pass it over to Qichao.

[Qichao Hu, Founder and CEO at SES AI]

Thank you, Kyle. SES is solving two of the most difficult challenges in energy storage: accelerating product development using AI for materials and building a robust supply chain to manufacture these products. We originally focused on EV and pivoted more than a year ago to ESS and drones applications. In Q2, we began seeing significant commercial milestones, and we are very excited about the path we are on. Our Q2 revenue grew by more than 40% compared to Q2 last year, and our gross margin improved from 18% to more than 22% due to our differentiated technology and robust supply chain. We are reaffirming our 2026 revenue guideline of $30 million-$35 million.

[Qichao Hu, Founder and CEO at SES AI]

On accelerating product development using AI for materials, we released Molecular Universe MU-3.0, our first agentic workflow platform that works for sodium chemistry as well as lithium chemistry and can be integrated with autonomous labs deployed fully secured and on-premise. We shipped our first Search-in-a-Box order to one of the world's largest battery manufacturers, and some of the materials discovered by Molecular Universe have completed testing and entered pilot commercial deployment. On building a robust supply chain to manufacture these products, for ESS, this is our largest revenue-generating unit. We are making great progress, especially in the U.S. market. We were selected by Sol-Ark as a certified battery partner, and we brought on Paul Diemer, ex-CTO of Flex Power, to our board to help guide our ESS strategy.

[Qichao Hu, Founder and CEO at SES AI]

We continue to hire a stellar team with background in leading AI data center total solution providers to execute and deliver our exciting ESS growth. For drones and unmanned systems, we are recruiting a team with a proven track record of selling to defense and commercial drones. We expect to start producing one million NDAA-compliant cells per year in about one month at our Korea plant. Based on the strong customer demand we are seeing, we are looking at taking orders well into 2028. I will dive into each topic separately. On ESS, while most competitors sell either pure hardware that do not have intelligent software or pure software that are not trained on real-world data, our Edgebox-enabled ESS systems are trained on the specific cells that we use in our hardware systems, allowing for one-to-one matching, accurate state of health, and safety management.

[Qichao Hu, Founder and CEO at SES AI]

This prediction accuracy not only helps preventing fire and other incidents, this is tremendous saving for our customers across residential, commercial, industrial and data centers. One of the leading U.S.-based FCC-authorized inverter producers, Sol-Ark, certified our subsidiary, UZ Energy's low-voltage residential batteries for their hybrid inverter systems. We believe this certification with Sol-Ark will greatly accelerate the growth of UZ Energy's revenue in the U.S., especially given the recent FCC restrictions around foreign-produced inverters and other electronics. We were also honored to bring on Paul Diemer to our board of directors. Paul served as the CTO of Flex Power, where he ran critical and embedded power group that was responsible for delivering power solutions to data centers and other industrial systems. Paul also ran new EV product architecture at BorgWarner Inc. Paul's transition from EV to data centers is very similar to that of SES.

[Qichao Hu, Founder and CEO at SES AI]

On drones and unmanned systems, we expect to complete the scale-up of our Korea-based NDAA-compliant cell production from 200,000 cells a year to one million cells a year in about one month. We expect to start producing at one million cells a year full speed starting this Q4. We have already hosted many of the largest American and allied drones makers for line audits, with many more in the queue later this year. We expect revenue contribution from NDAA-compliant cells produced in our Korea line to start in a meaningful way in Q4 this year, and really start to take off first half next year. Even at one million NDAA-compliant pouch cells, which we believe is one of the largest NDAA-compliant pouch manufacturing capacities in the world, and combined with our best-in-class energy density and performance, we are looking at securing orders well into 2028.

[Qichao Hu, Founder and CEO at SES AI]

We are also seeking additional NDAA-compliant manufacturing capacities for both pouch and cylindrical cells to address the strong demand for these products. These cells will be for drones, but also broader unmanned and mobility applications. We recently announced a framework agreement with Doroni, where we will be responsible for designing and developing the complete battery pack for their H1-X eVTOL. It is a really cool two-seater. With Molecular Universe, we released MU-3.0. This is the most powerful and complete end-to-end workflow automation in energy storage. We sold a Search-in-a-Box module to one of the largest battery makers in the world, and we are trialing full MU-3.0 workflow integrated with autonomous labs, with many more. We do have competitors for AI for materials, but none offer solutions as complete, accurate, and most importantly, secure as ours. Many of our customers switch to MU after trying our competitors' offerings.

[Qichao Hu, Founder and CEO at SES AI]

Many of our competitors try to offer building blocks in a cloud-based toolkit, but product development is more than a toolkit, and very few enterprise customers would allow their proprietary data to leave their premises or be used to train external models. It requires a fully secured on-premise integration of domain expertise, experimental data, and computation chemistry simulation full stack. Some of the materials discovered by Molecular Universe have completed testing and entered revenue-generating early-stage commercial pilot development. We expect to release MU-4.0 later this year. It will feature ability to generate new molecules based on desired properties, and it will be integrated with autonomous labs, A-Labs hardware, so users can generate or discover new molecules, synthesize them, validate them in full devices, and provide actual experimental data back to train their own foundation models, all fully secured on premise.

[Qichao Hu, Founder and CEO at SES AI]

This flywheel connects simulation with experimental validation, can organize and generate high-quality data, and train models fully secured and on premise. Without humans in the loop, it can run much faster than humans ever can. I do think a lot of investors are underestimating Molecular Universe, especially purely through the lens of near-term monetization. I believe in the next three to five years, Molecular Universe will power majority of product development, definitely in energy storage, and expanding to complex fluids, and eventually other material applications. The SES team is solving two of the most difficult challenges in energy storage, accelerating product development using AI for materials, and building a robust supply chain to manufacture these products. We have a healthy cash runway, highly differentiated capability across products and manufacturing, and one of the most dedicated teams.

[Qichao Hu, Founder and CEO at SES AI]

I am incredibly proud to work with our team on these critical challenges, even when the market may perhaps underestimate us. I would like to thank the team for their hard work. Now here is Ray for the financial updates.

[Ray Liu, CFO at SES AI]

Thank you, Qichao. I will walk through our second quarter 2026 financial results. Second quarter revenue was $5.1 million, compared to $6.7 million in the first quarter of 2026, and $3.5 million in the second quarter of 2025. Notably, this quarter validated our commercial momentum. For the first time, we saw revenue contribution across all product lines: ESS, drone battery cells, materials, and Molecular Universe. Our GAAP gross margin was 22.6% in the quarter, an improvement from 18.1% in the first quarter. The improvement was particularly driven by the ESS business, where we saw a higher mix of international sales and continued pricing discipline. Turning to operating expenses, our GAAP operating expenses for the second quarter were $20.3 million, compared to $19.1 million in the first quarter. The slight sequential increase was primarily due to a bad debt provision related to a legacy EV service contract.

[Ray Liu, CFO at SES AI]

Year-over-year, however, operating expenses were down 26%, and we remain confident in our ability to sustain the expense reduction of more than 20% year-over-year. Our GAAP net loss for the second quarter was $17.8 million, or $0.05 loss per share, compared to a GAAP net loss of $12.1 million, or $0.04 loss per share in the first quarter. I want to remind everyone that our GAAP net loss can be impacted by non-cash mark-to-market movement in the fair value of our sponsor earnout liabilities, which are required to be remeasured each reporting period under GAAP. In the first quarter, we recorded a $4.2 million non-cash gain related to these liabilities. That impact was insignificant in the second quarter.

[Ray Liu, CFO at SES AI]

Excluding change in sponsor earnout liabilities, stock-based compensation, depreciation and amortization, and including interest income, our non-GAAP net loss for the second quarter was $13.1 million or $0.04 loss per share compared to a non-GAAP net loss of $11.1 million or $0.03 loss per share in the first quarter. The sequential widening in non-GAAP net loss was primarily due to lower revenue in the second quarter and the bad debt provision that I mentioned earlier. Looking ahead, we expect our net loss to narrow in the second half of the year, driven by a pickup in revenue and continued reductions in operating expenses as our cost reduction program takes full effect. Adjusted EBITDA for the second quarter was a loss of $14.6 million, compared to a loss of $12.8 million in the first quarter.

[Ray Liu, CFO at SES AI]

A detailed reconciliation of GAAP net loss to adjusted EBITDA and non-GAAP net loss is included in the financial tables at the end of the shareholder letter. Turning to capital allocation, we ended the second quarter with cash equivalents, and short-term investments of approximately $163 million. Our CapEx-light business model remains a core financial discipline, and we are confident our current liquidity provides a runway to fund operations and execute on our 2026 growth initiatives. We are actively looking for inorganic growth opportunities, including M&A, that complement our strategy while maintaining financial discipline. We believe the second quarter demonstrates continued execution against the plan we laid out, broadening revenue contribution across all our products, continued gross margin improvement, and disciplined cost management. We are reaffirming our full year 2026 revenue guidance of $30 million-$35 million. As we look to the second half of the year, our priorities are clear.

[Ray Liu, CFO at SES AI]

Continue to scale energy storage systems and Edge Box distribution, convert our drone qualification pipeline into commercial orders as the Chungju ramp completes, and close our supply agreement for materials discovered through Molecular Universe. With that, I will hand over to the operator.

[Operator]

We will now begin the question and answer session. To ask a question, please press star one to raise your hand. To withdraw your question, please press star one again. We ask that you do pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by now while we compile the Q&A roster. Your first question comes from the line of Winnie Dong with Deutsche Bank. Your line is open. Please go ahead.

[Winnie Dong, Analyst at Deutsche Bank]

Hi. Thanks so much. I wanted to touch on the back half of this year. If you can remind us the mix of revenue that is going to be driven by across the different business lines. If you can also talk about the backlog at the energy segment. It seems like you have got some important certifications that might be good for the U.S.A. What kind of demand should we might would be looking at for 2027? I have a follow-up. Thanks.

[Ray Liu, CFO at SES AI]

Winnie, in terms of the split, first half is basically majority ESS, almost more than 70% ESS. In the second half, we do expect drones and materials to pick up. Still more than half from ESS. In terms of the certification with Sol-Ark, basically if you are not certified, then you are competing with 20 other companies. Once you are certified, and there is only less than five, there is Enphase, there is Tesla, there is Sol-Ark, then really you are competing with three. Later half this year, we expect a hockey stick to start to pick up and then a lot more next year. We do not have the exact number yet, but we are quite excited to be certified by Sol-Ark because now we go from competing with 20 other players to now competing with just Enphase and Tesla.

[Winnie Dong, Analyst at Deutsche Bank]

Okay. Thank you. That's helpful. I was wondering maybe just on the capital allocation side, it seems like you're sticking with that CapEx-like approach. You do have $160 million+ cash runway. What kind of CapEx might you be looking to spend it on? You also alluded to M&A. What are some of the pipelines that you're looking at? What could we anticipate? I think if I look back to the capacity you have for your drone sales out of Korea, it seems like there is demand and order into 2028. Would you need capacity expansion there and the use of CapEx for that? Thanks.

[Qichao Hu, Founder and CEO at SES AI]

We definitely do. If we just have one million cells out of Korea, then literally we're going to supply at most three drone customers that need NDA, at most. So without additional capacity, and based on this pipeline, we are looking at 2028. If we can double the capacity in Korea to two million or triple that or find additional NDA compliant capacity in Southeast Asia, so if we quadruple or even more of that capacity, then all that pipeline that we were going to supply in 2028, now we can supply in 2027. In terms of line, not so much this year because most of that has already been spent. Again, most of the Korea CapEx, we built that back during the JDA with GM. So now it's not really building new CapEx, it's more modifying that. So not so much this year.

[Qichao Hu, Founder and CEO at SES AI]

Later this year or next year, if we're to invest in additional CapEx, either through direct investment or through investing in JVs or companies that own those CapEx, I think that's TBD. Again, for drones, we're not talking about gigawatt hours scale. We're talking about, for example, 20 MWh, 50 MWh, way smaller than gigawatt hours. So I think the spending is a lot more efficient than the EV CapEx.

[Winnie Dong, Analyst at Deutsche Bank]

Thank you. What about the M&A portion? Any pipelines that you might be looking at? Anything that we should anticipate?

[Qichao Hu, Founder and CEO at SES AI]

We are exploring. I think there are some companies that have interesting manufacturing capacities in Korea in the drone space, in the ESS space, companies that make pouch cells for drones or prismatic LFP. We are very interested in working with them, both cell companies as well as pack companies. We are still evaluating some of those capacities.

[Winnie Dong, Analyst at Deutsche Bank]

Thank you so much.

[Ray Liu, CFO at SES AI]

Winnie, internally we set up some, just want to add, internal guardrails on doing M&A. Anything we want to do is going to fit into our strategy and also it is going to be business and revenue accretion to our business. We are just looking to, as Qichao was mentioning, expand with the cash we have on hand.

[Winnie Dong, Analyst at Deutsche Bank]

Great. Thank you so much. I will pass along.

[Operator]

Your next question comes from the line of Dave Storms with Stonegate. Your line is open. Please go ahead.

[Dave Storms, Analyst at Stonegate]

Hello, and thank you for taking my questions. Just wanted to maybe start with your comments around the expected gross margin improvement. Could you help us understand maybe what might be driving this? Is this going to be continued pulling from on pricing? Is this volume increases, mix as you're moving into more drones in the back half? Any further color here would be great.

[Ray Liu, CFO at SES AI]

Yeah, I can add some color. I think the improvement, as I mentioned in the announcement, is primarily from our ESS business. That is mostly driven by increased international sales, which we typically, especially in the North America, we typically see a higher margin on the sales in North America. Additionally, we have maintained a price discipline on the ESS business, so that has contributed. I think the back half of the year, as the drone revenue picks up, we will see margin increase because a drone sale typically carries a higher margin compared to the ESS business. So we will see margin improvements in the second half.

[Qichao Hu, Founder and CEO at SES AI]

Yeah, I think one of the key drivers to the gross margin, especially in ESS, is the price of the cells. Nine months to a year ago, cells were really expensive, and we did not have Edge Box. So we were required to buy cells produced by one vendor out of one of their lines. So we have very little pricing leverage. Since we have Edge Box, now we are able to source cells from multiple vendors and multiple lines, because we are able to monitor and balance between the cells. So that has reduced the price of cells.

[Dave Storms, Analyst at Stonegate]

That's great commentary. I really appreciate that. Maybe switching to drones, you mentioned that you are exploring beyond drones, the broader unmanned and mobility applications. You called out a new partnership there. Maybe if you could spend a little bit of time talking about maybe some of the technical challenges between drones versus the broader unmanned ecosystem, if there are any. Maybe how that market looks in terms of margins or demand or TAM compared to your current market. Anything you can tell us there would be very helpful.

[Qichao Hu, Founder and CEO at SES AI]

A lot of it is just timing and go-to-market investment and also timing. We focus on drones because that market we have seen that is consolidating around one up to three major form factors. The cells we build would definitely, first and foremost, sell to drones. Now, there are other applications that recently have surfaced. Marine applications, boats, submarines. Applications that also care about weight, NDAA compliance, as well as some of the cargo planes, manned eVTOLs, as well as unmanned eVTOLs. All of the form factors that we have matured for drones applications, we're also selling those to the other adjacent markets.

[Dave Storms, Analyst at Stonegate]

That's great. Thank you very much.

[Operator]

Your next call comes from the line of Craig Irwin with Roth Capital. Your line is open. Please go ahead.

[Craig Irwin, Analyst at Roth Capital]

Good evening, and thank you for taking my questions. I wanted to ask about Molecular Universe. Qichao, you're clearly excited about this as a longer-term opportunity and the potential for both revenue and IP out of the library that you've developed. Can you maybe talk about customer engagement? How actively are you marketing this to new customers at the moment? Do you have strong leads for additional new customers at the moment? If you could maybe give us a little color on the breadth of the customer interest. How long do you think it will take as far as customers that are already looking for leads out of your database to make those commercial and have those revenue-generating opportunities?

[Qichao Hu, Founder and CEO at SES AI]

I would say we have about three customers, three battery companies that we are deeply engaged with. When I say deeply, I mean there's at least three to five teams within each company that are evaluating different parts of Molecular Universe. The entry level, basically ones that buy modules, for example, you mentioned Search-in-a-Box. Some people buy Predict-in-a-Box. Some people buy Design-in-a-Box, some buy Search-in-a-Box, some buy Formulate-in-a-Box. That's the entry level. Companies buy these modules. Second level, companies will buy the entire workflow, Ask, Search, Predict, Design, Manufacture. Basically, this entire workflow, and also with MU-StarSeeker, so it's an agentic workflow. The third tier, companies that buy what we call AM Labs. AM Labs is an integration of the entire agentic MU-StarSeeker with autonomous labs. We will actually combine the MU-StarSeeker with corresponding autonomous labs.

[Qichao Hu, Founder and CEO at SES AI]

For example, Ask and Search is integrated with a new molecule synthesis A-Lab. Formulate is integrated with electrolyte A-Lab. Design and Predict are integrated with electrode optimization A-Lab. Also part of Predict is integrated with cell testing A-Lab. Before we had pure software platforms installed on premise. Instead of having this pure software in a box delivered on premise, now the software is delivered together with a lab. A customer could just provide us 1,000-1,500 square meters of space, and then we will lay out all the A-Labs and the corresponding software.

[Qichao Hu, Founder and CEO at SES AI]

On the customer side, instead of needing 30 people, 50 people to run this lab, now you need just one PM, one project manager with this entire software and this entire A-Lab together, AM Lab, and then you can have a complete battery workflow. There are three major customers that we are, I would say, at the third-tier discussion. Hopefully, we'll announce some revenues at the AM Lab level. Beyond these three, there are also other battery companies that we are in the module level and the workflow level.

[Craig Irwin, Analyst at Roth Capital]

Okay, excellent. Understood. My second question is about the cells coming online in Korea. You are going from 200,000 cells a year in capacity to one million cells a year in capacity. When I look at your current capacity of 200,000 cells, that is quite small versus the needs of a lot of the defense suppliers, the drone producers, and other companies that use lithium-ion batteries in military equipment. But one million cells a year sort of gets you in the game. Have you received any sort of soft commitments from these NDAA-constrained customers, the defense market customers, as far as probable orders or potential orders on that one million cells a year? What is your confidence level that you will see the offtake there?

[Craig Irwin, Analyst at Roth Capital]

Actually, I guess another question is it possible we see revenue from the incremental capacity at the end of this current quarter within the month of September?

[Qichao Hu, Founder and CEO at SES AI]

Yeah. In total, our pipeline for drones for just NDAA, not counting the non-NDAA, we are talking about 50+, just all NDAA. The large customers, and we define large customers are the ones that need about 200,000-300,000 NDAA-compliant cells a year. We have maybe five large customers. Just the top five large customers, we have already exceeded one million. We are at 1.5 million, right? 1 million is the capacity, if you take into account some quality, some downtimes, this and that, probably we deliver 700,000, 800,000. Yes, we are way under capacity, purely in terms of NDAA compliance. We are doing two things. One is we are evaluating other capacities in Korea, either through our own investment or through a contract manufacturing, so that we are hoping to double, maybe triple the NDAA compliant capacity in Korea.

[Qichao Hu, Founder and CEO at SES AI]

We are also looking at additional capacities in Southeast Asia. This is one. Number two, the customers do have a range, a spectrum of NDAA compliance. We have ones that want 100% NDAA compliance. Means cathode, anode, electrolyte, separator, pouch, and the entire assembly, everything must be done in Korea. Completely NDAA compliant. We also have customers that are okay with 40% NDAA compliant, 50% NDAA compliant. In some cases, Korea's own article 1, article 2 compliance, where you can have cathode from Korea, pouch from Korea, but then cell assembly done in China just for one year. We reserve the one million capacity in Korea purely for those that want 100% NDAA compliant. We do have additional capacity for those that want maybe 40%, 50%, 60% NDAA compliant.

[Qichao Hu, Founder and CEO at SES AI]

We do have alternative capacities for those that don't want 100% NDAA compliance, but some portion of NDAA compliance, as well as we're looking for additional capacities in Korea and Southeast Asia.

[Craig Irwin, Analyst at Roth Capital]

Thank you for that. My last question is you're increasing capacity or increasing your capacity commitment there fivefold. I do realize that you're using contract manufacturing, so probably you don't see as big a potential improvement in cost. Is there an improvement in cost that you can expect on this capacity increase? The five customers that are very large in the drone market that you mentioned, have they already started sampling cells, given that you're going to be using nearly identical production, identical cell recipe to produce the commercial products?

[Qichao Hu, Founder and CEO at SES AI]

I just want to confirm that one million, 100% NDAA compliant cells out of Korea, those are entirely our own production. Then we have several other million, less than 100% NDAA compliant. Those are through contract manufacturers. In terms of where we are with the customers, they've done sample testing, multiple rounds. They've done a line audit, one to two rounds, and then they're waiting for that one million cell capacity to be operational in September, and then visit again for additional quality audits. In terms of pricing, yes, going from 200K to one million would significantly reduce the price.

[Craig Irwin, Analyst at Roth Capital]

Excellent. Well, thank you for that. Thank you for the clarification. Congratulations on your progress.

[Qichao Hu, Founder and CEO at SES AI]

Well, thank you.

[Operator]

Your next question comes from the line of Mark Shooter with William Blair. Your line is open. Please go ahead.

[Mark Shooter, Analyst at William Blair]

Hey, Qichao. Qichao, am I coming through?

[Qichao Hu, Founder and CEO at SES AI]

Yes, we hear you.

[Mark Shooter, Analyst at William Blair]

Great. Thank you.

[Qichao Hu, Founder and CEO at SES AI]

Mark.

[Mark Shooter, Analyst at William Blair]

On the ESS business, I am interested in if you can update us and give us a little bit of color on exactly what niche of this segment you are looking to play in, ideally. Can you update us on if you are still trying to sell a product that is the full solution, including the battery and the BMS or Edge Box? Or is there an opportunity to just sell the Edge Box to potentially a utility or an integrator?

[Qichao Hu, Founder and CEO at SES AI]

I would divide them into three categories. One is it is just residential, and then this new certification. In residential, most companies buy batteries and inverters in one pack, right? People do not really just buy a battery or just buy an inverter. You buy those two connected together. Recently, when some of those foreign-produced inverters got blocked, that did also impact their co-sell, co-marketing relationship for the battery suppliers, because those two are sold a lot of times together. This partnership with Sol-Ark. Sol-Ark is one of the three, along with Enphase and Tesla, that have U.S.-produced inverters. This will help the residential. Yes, we do include the Edge Box there. Second is more larger scale data centers. This is quite new for us. This is not an area that UZ Energy was in.

[Qichao Hu, Founder and CEO at SES AI]

UZ Energy was familiar with residential, not so much in AIDC. Here we are trying to provide a total solution. The entire UPS, sometimes it is the best together with the Edge Box. This is also why we brought on Paul to help us navigate the go-to-market strategy here. Third one, some of the battery inverter distributors are open to us installing the Edge Box. We are testing with them, and that may also pick up as a revenue source.

[Mark Shooter, Analyst at William Blair]

That's helpful. Thank you. Now talking about that second piece of the hyperscalers, is there anything available or that you're ready to update us on that and give us a little bit more detail on the level of engagement?

[Qichao Hu, Founder and CEO at SES AI]

Yeah, I think we can discuss and share more in Q3 or Q4. I think now a lot of those are a bit early.

[Mark Shooter, Analyst at William Blair]

Okay, understood. Thought I would try. Also in the shareholder letter, you mentioned that most competitors just sell hardware without software. The competitors I'm thinking of have very complex and sophisticated software programs attached. Who do you consider your key contenders in the space?

[Qichao Hu, Founder and CEO at SES AI]

I think some of the competitors that you're thinking of, they do. The large ones, they do. I think for the majority, they either use a third-party software or they use an internal software that's not specifically trained on those cells. For example, say the pack system is using a 314 Ah LFP prismatic produced Q1 this year out of the line from, say, CATL or EVE. Our Edge Box will be trained on that batch of cells, literally the exact batch of cells that go inside the pack. If we switch to even a different vendor that makes the same 314 amp hour LFP prismatic, we will retrain the software. The software gets retrained on the specific cell, the specific vendor, the specific chemistry that we actually put inside the pack.

[Mark Shooter, Analyst at William Blair]

Okay, great. Thank you. I appreciate the color.

[Operator]

There appear to be no further questions at this time. This concludes today's call. Thank you for attending. You may dis-

Participants

Executives

• Kyle Pilkington, Chief Legal Officer
• Qichao Hu, Founder and CEO
• Ray Liu, CFO

Analysts

• Winnie Dong, Analyst at Deutsche Bank
• Dave Storms, Analyst at Stonegate
• Craig Irwin, Analyst at Roth Capital
• Mark Shooter, Analyst at William Blair