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spk03: Hello everyone and thank you for joining the Frere Battery third quarter 2022 earnings conference call. My name is Daisy and I'll be coordinating your call today. If you would like to register a question ready for the Q&A session, please press star followed by one on your telephone keypad. I would now like to hand the call over to your host, Jeff Spatel, Vice President of Investor Relations to begin. So Jeff, please go ahead.
spk08: Good morning, good afternoon and good evening. Welcome to FerroBattery's third quarter 2022 earnings conference call. With me today on the call are Tom Leiner Jensen, our Chief Executive Officer, Jan Arve Haugen, our Chief Operating Officer, and Oscar Brown, our Chief Financial Officer. During today's call, management may make forward-looking statements about our business. These forward-looking statements involve significant risks and uncertainties that could cause actual results to differ materially from expectations. Most of these factors are outside Frayer's control and are difficult to predict. Additional information about risk factors that could materially affect our business are available in Frayer's S-1, an annual report on Form 10-K filed with the Securities and Exchange Commission, which are available on the Investor Relations section of our website. With that, I'll turn the call over to Tom.
spk05: Thank you, Jeff. And good morning, good evening, good afternoon, everyone. Pleasure, of course, as always, to be speaking to you in this, our sixth earnings call since we've been public on the New York Stock Exchange for our third quarter earnings report for 2022. During today, we will go through some refreshments, so to speak, on what we've been doing to date. We're going to refresh you on what we've done in terms of selecting technology. We'll give you an update on where we are, talk about the market dynamics, which is accelerating in front of our eyes. I had the pleasure, of course, of announcing our Giga America ambition to the world a couple of days ago. I just arrived back from Atlanta. We'll talk about that. We'll talk about our strategic partnerships. And I will take you through updates on the operational side. Oscar will take you through updates on the financial side. I'll sum up with strategic priorities before we turn to Q&A. So Thread is a company that went public on the New York Stock Exchange on the 8th of July last year. We built our company around three core tenets of speed, scale, and sustainability. And everything we do is linked to these three things. And the last quarter has fundamentally supported that ambition, as we have demonstrated through moving forward at pace, both on the commercial side, on the operational side, and on the strategic side. We offer differentiated exposure to the secular growth trends in the battery market, and we are an increasingly selected partner of choice in providing clean battery solutions. We're on track to becoming a global leader in this space. We have captured a large part of the nascent but rapidly growing ESS market, and we're now seeing increased interest and momentum building in the commercial vehicle space as well as the electric vehicle space. We are a partnership-based organization, and we value our partnerships, and we develop ourselves in combination with and in learning from our partners that we have now from Japan in the East all the way to the U.S. in the West. So, as mentioned, we started out in 2018. Basically, 2018, when the idea was formed, as I mentioned to many of you before, we were inspired by Nordvolt and impressed by their development. But as good Norwegians, we tend to think that we can do it a little bit better than the suite. Fast forward to July 8th last year, when we went public on the New York Stock Exchange, obviously a formative point in Dreyer's history. Since then, a broad variety of important partnerships have been established, both for joint venture development in the U.S., for downstream opportunities with NEDEC in module pack and DC block, basically containerized ESS solutions, important supply chain partnerships with Etortu and Alise on cattle manufacturing, and of course, the soon-to-be-completed customer qualification plant, or sanctioning of developing of GigaArctic and our announcement of GigaAmerica, all of which speak to our three core tenets in our strategy of speed, scale and sustainability, moving towards becoming a global champion at the global scale, targeting more than 200 gigawatt hours of capacity installed by 2030. I just want to take a moment to remind ourselves about our technology strategy. So, Freyr took 18 months in our technology selection process before we landed on our first technology partner, 24M Technologies, MIT spin-off out of Boston in the US. And we were looking for three things when we were selecting technology. We were looking for a technology that was commercially introduced, Because we wanted to get rapidly to the market with product in this exponentially growing demand for batteries in an increasingly market short environment. We wanted something that offers that change in performance and cost. Because ultimately this is a numbers game and we need to be on the left-hand side of the cost curve to basically be able to compete with the Asian business models in general and the Chinese business model in particular. So Interim Technologies offers dramatic reduction in footprint of the facility, dramatic reduction in capex, strong reduction in energy consumption, and much more production per employee, and differentiates basically the ones who are able to take this to the gigawatt-hour scale. And FedEye is the first company to take this technology to the gigawatt-hour scale, and we're on track in pushing towards becoming that differentiated clean battery solution partner of choice. But equally important, our third criteria was to be able to improve this technology further over time. And we're very happy to have established very deep iterative discussions and partnerships with the other licensees in the 24M family to basically ensure that we can continue to push the boundaries of what is possible to achieve within the existing raw material paradigm for lithium ion batteries, but staying within a disruptive technology process, which we're now advancing further as we speak. So we are hard at work in ensuring that we can meet the industrial and financial milestones that we need to get to that gigawatt-hour level scale. We are acutely aware of the integrated nature of building and financing and operating multiple facilities over time, and I'm proud to announce that we are making good progress on all of our core verticals. We are intensifying and broadening our financing efforts to support this parallel development that we're now on with GigaArctic and GigaAmerica. The good news is that we already have detailed blueprints established for GigaArctic, which will be reasonably easy for us to replicate in specific detailed engineering blueprints when we now move into that detailed engineering phase for GigaAmerica. This will allow us to brief the learnings from GigaArctic into our next generation development in Georgia. And we're really looking forward to leveraging our learnings from Norway and exporting them to our new partners in Georgia. The GigaArctic project financing process is in its second stage and also we'll come back to that and be targeting additional credit approvals for that in first quarter of 2023. The customer qualification plan is on track to produce its first sales in the next quarter in 2023, and that will enable us to unlock competitive project financing and accelerate further customer acceptance tests, etc., as we are seeing today. There is deep increasing interest from strategic and industrial partners to enable what we label accelerated capital formation, and Oskar will take you through a deeper status on that in his front group. We've also tested 24M cells with one of the leading agencies in Europe linked to our customers, and we're very happy to see that we are exhibiting top quartile energy density and very strong safety performance in our cells. So seeing the performance of 24M cells relative to the energy storage market is something that obviously is generating a lot of traction with our customers. And we're really looking forward to documenting that we can produce these cells also in the customer qualification. We are continuing to accelerate on the commercial front with more conditional offtake agreements in process of being converted to term offtake agreements. From a project finance point of view, we're targeting 60% or more firm offtake capacity through 2032 to basically unlock as bankable project financing solutions as possible. Furthermore, I'm really happy to say that we're seeing now an acceleration in the interest for our solutions also from the commercial mobility sector as well as the electric vehicle sector. We are in advanced discussions with a broad variety of stakeholders across the entire mobility and EV spectrum, and we will be continuing to mature long-term strategic partnerships in this regard with some of the leading firms on the planet. Obviously, all of this will not happen unless we have a very strong focus on securing relevant materials, and we are making good progress in this regard as well. So we have secured most of the materials we need for the immediate future, both from a customer qualification plan point of view and also from a giga-architecture point of view. We have also announced efforts to establish localized and decarbonized supply of, for instance, cathode materials into our giga-facilities. And our licensing partnership with the lease, which I'll come back to in a second, is a good example in this regard, which will allow us to drive down costs. maintain our position on the left-hand side of the cost curve, and also ensure that we can drive down the carbon footprint of the facilities that we build. Let me just take a moment to remind everyone of the exponential nature of the growth in the ESS segment. We have always been of the opinion that the decarbonization of society is in large part driven by the decarbonization of the transportation sector, but also the decarbonization of the energy sector. And it's evident that the batteries that go into electric vehicles eliminate the point of combustion from the tailpipe. But if you charge these batteries with non-renewable energy, and if you build these batteries also with non-renewable energy, you will not enable the decarbonization required. So therefore, we have always been of the opinion that the market opportunity in the energy storage segment is as large as it is in the electric vehicle segment. And it's very good to see that more and more stakeholders are changing and revising their estimates in the right direction. The only thing I know about these predictions is that they are most likely wrong. But the other thing I know is that they continuously be revised upwards. So we are of the opinion that the ESS opportunity is much larger than most people think. And this is also in part one of the reasons why we think the 24M Technologies production platform is particularly suitable for these applications. These represent very large and thick electrodes that we can apply into containerized solutions for storing sunlight and wind, and provide stress relief to grids as they move to more and more intermittent power supply when they move away from baseload coal and baseload natural gas as their main sources of energy. Therefore, this movement is fundamentally supporting Friar's accelerated development, and our GigaArchitect and GigaAmerica announcements should be seen very much in this regard. We will, however, also be producing batteries for commercial vehicles and electric vehicle applications, most likely from both facilities. But the flexibility that our technology platform provides us with is also a differentiating feature that we're very happy and proud to take to GigaWatt Hourscape. Let me then briefly mention, and many of you probably witnessed our announcement late last week when we announced the development of Giga America. We are now committing to developing clean next-generation batteries in the U.S. at gigawatt-hour scale, and it was a pleasure for me to take part with the great people of Coweta County alongside representatives from the state of Georgia in announcing our Giga America plans. Our initial phase development here will be 34 gigawatt hours, roughly costing the same as GigaArctic. We have received strong financial support from the county and the state of Georgia, a core pillar, of course, alongside talent, logistics, and infrastructure as our key features in selecting this site. We did a very rigorous selection process looking at more than 130 sites across 25 states and we landed in coeta county in georgia and we have 368 acres of prime industrial acreage which we now aim to move into development phase up as we move into detailed engineering over the next couple of weeks and months so this Industrial acreage is ideal for not only multiple phases of battery cell manufacturing projects, but we could also add both upstream and downstream facilities into the mix. We here have a site which is already 15 times larger than the site we have in Norway. So we have an opportunity to really expand as and when we see the commercial momentum growing in the U.S. We will over time invest more than $2.6 billion on this facility in line with the agreement we have with the state and local municipalities and employ over 700 people in the process. We will be leveraging the American technology based again on the 24M technology platform, which again is a very simplified process that enables us to really sort of differentiate ourselves both from an ESS point of view, but also, as I mentioned, commercial vehicles and electric vehicle applications. And the final thing I'd like to say on this one is it is very important for us to be a geographically diversified provider of clean battery solutions. This is something that our customers really value. They see regional security of supply as a core part of large off-take agreements, and this is something that you should expect more and more customers to be focused on in the coming weeks and months as we are firming up and converting many of our off-take agreements to long-term sales agreements. We've also in the quarter forged new strategic partnerships and I'd like to mention two of them. The one we did with Alice, the largest producer and developer of LSP technology outside of mainland China. And we are now evaluating how we are going to establish our own cattle manufacturing facilities in northern Europe, in Scandinavia in particular. And we're also looking at how we can leverage this worldwide license that we have for producing LSP cattle material to our facilities both in Norway and in the United States. This, again, fundamentally secures the core cost component, but also the core carbon content component in the raw materials we use when we produce battery cells. And having a world-leading technology like the one of Elise secured through a very competitive licensing agreement is something that will enable us to stay, as mentioned, on the left-hand side of both the cost curve and the carbon curve over time. Equally important for us, and of course with deep pride, is that we have established a broader supply chain partnership with Itochu. Itochu is one of the leading trading houses in Japan, also an investor and core supporter of the French brand technology, and they will serve as a direct material supplier for us in our procurement and supply chain operations. We obviously intend to leverage Itochu's broad global network and expertise across the entire spectrum of securing, transporting, and leveraging world-leading materials for our battery cell ambitions. With that, I'm going to hand it over to Jan-Arve, who's going to take you through the operational updates from the customer qualification plan in GigaArctic.
spk06: Jan-Arve? Thanks a lot, Tom, and hello to everybody. As you can see now on slide number 12, We are going to give you the update from the customer qualification plans. But first of all, I'm glad to inform you that we have yet another quarter without any reported serious safety incidents. And I will come back a little bit to that. A couple of minor incidents have been reported, but the current workforce At the construction site in Mo is now approximately 100 persons at the Customer Qualification Plant and close to 50 at the construction site for GigArchic. As the workforce is growing and more complex installations and work is elevated above ground, safe job analysis and multidiscipline coordination is of vital importance in order to have a safe and secure workplace. As we noted in our previous earnings calls, we are progressing according to the schedule. But of course, we are not immune to the challenges, both when it comes to logistics, COVID-19 lockdowns and scarcity of semiconductors. At the same time, this is actually what we are planning for, and it's the way we solve these problems that shows the way we are securing delivery and identifying workarounds in order to mitigate delays and cost consequences. Therefore, I'm very glad to inform you that the first important milestone was met last week when we at the site in Moerana managed to have the site acceptance test for the milling machine, which is part of the upstream powder handling, and this system is delivered by Nippon Coat from Japan. As you saw on the third page of today's presentation, there is a team from South Korea, from Hanotech, which is now performing the installation and mechanical completion of the downstream section of the CQP. As we speak, most of the machines have met the key milestones of factory acceptance test at the manufacturer's premises and are in transport to the plant in Mo. The costing and needed cell assembly delivered by NPAT Lampic is the supply that is on the critical path for the first batteries next year. We are mobilized with an integrated team at the manufacturer's site in Padcaster, UK, and the current program indicates that the transport to the plant in Mo will be done before year-end, and we are going to start the installation into the dry room early next year. We plan to test the upstream units to make our own cathode and anode slurry well in advance of the costing activities. The operations team is integrating part of the mechanical completion and the commissioning group at the location in Mo. The key milestone for us is to be able to start the casting of the battery cells in the first quarter of 2023. And the first test containers are currently being installed at the test center adjacent to the CPP. Then I'll go to the GigaArctic on the next page. The pre-approved funding for the GigaArctic construction program is now gradually coming out of the concrete foundations. Grown work is according to schedule, and we have started the erection of the prefabricated steel structure for the first Garun Ogigarti. The building and infrastructure contractor are now well advanced in freezing the quarter side of the building, this in order to call off the steel prefabrication. In parallel with this, all crucial production line equipment providers are collaborating in the design phase, of the integrated production system. Alignment of vendor information and interface coordination is now the main focus in this collaboration phase until enabling us to order the long lead items. Finally, we wanted to indicate the size of how big this Gigafactory is. tried to put this factory into different locations, both in Oslo, in Rome, and at Lower Manhattan. Of course, this is a big factory. It's 120,000 square meters of floor space, which is then managed into, at Moerana, approximately 77,000 square meters. Just to set this in comparison to what Tom talked about when it comes to Villa America. Our SOP is planned for the summer of 2024, subject to closing of the project financing. And by this, I thank you for now, and I give the word over to Oskar for the financial update.
spk09: Great, thank you, Jan-Ave. Moving on now to the financial update slide of the earnings deck, I will review our financial results for the second quarter and the first nine months of 2022, as well as provide an update on our financing initiatives. For the quarter ended September 30, 2022, Steyer reported a net loss of $93.8 million, or 80 cents per share, compared with a net loss of $45.4 million for the same period last year, which was also the quarter that we listed on the New York Stock Exchange. For the nine months ended September 30, 2022, the company reported a loss of $124 million, or $1.6 per share. It's important to note that $70 million of the loss in the third quarter of 2022 and $46 million of the loss for the nine months ended September 30th had to do with a non-cash warrant liability fair value adjustment for those periods. As highlighted in our last earnings call, this liability moves around period to period based upon, among other things, the company's stock price at the end of each period, generally reporting gains when the stock declines, as was the case in the second quarter, and losses when the stock rises, as was the case in the third quarter. Our stock price was just under $7 per share June 30th, and just over $14 per share September 30th of this year, which resulted in a significant third quarter non-cash adjustment. More importantly for today is our cash investment rate. We spent net cash of $70 million in the third quarter, compared with $36 million in the second quarter, and $147 million for the first nine months of the year, ending the third quarter with $419 million of cash and equivalents and no debt on the balance sheet. As shown on the financial update slide in the earnings deck, naturally cash was spent on corporate overhead, operating expenses, and capital expenditures, primarily supporting the customer qualification plant and GigaArctic, as well as a small amount of initial spending on our U.S. Gigafactory and other business development activities. As mentioned in the last quarter, the mix of CAPEX and OPEX will continue to skew more towards CAPEX in the future, particularly as the Giga-Arctic project matures. Also as mentioned last quarter, with Thayer's Board approving incremental spending and commitments to continue progress on Giga-Arctic, and as we move towards completion of the Customer Qualification Plan in Q1, we expect our expenditures to increase further in the fourth quarter as they did in the third quarter. In addition, last week we completed the acquisition of the land for the Giga America site and took control of our U.S. joint venture with Koch, giving us full flexibility to bring on additional strategic partners to the Giga America project. With respect to financing, we completed the first phase of the Giga Arctic project financing journey during the third quarter. This was a market-sounding process during which we went out to a group of commercial banks, multilateral development financial institutions, MBFIs, and export credit agencies with a proposed $1.5 billion targeted debt package were up to 70% gearing when including capital expenditures for battery cell manufacture, financing costs during construction, funding of the debt service reserve account, working capital and pre-operating costs, and other contingencies until the project achieves pre-cash flow. Results from the market sounding received in the third quarter were very encouraging with indications of interest of up to $2.5 billion from more than a dozen lenders, plus the previously announced credit support from our key export credit agencies. Final sizing of the project debt for GigaArctic will be a function of the results of the due diligence process, the balance of firm offtake agreements versus what we expect to be more profitable merchant sales, execution risk analysis, and so on. We are now deep into the next phase, the due diligence stage, of the GigaArctic project financing process. with the lenders currently utilizing five consultants to enhance their due diligence and evaluation, as is typical for projects like this. This process will continue through November and into December, as well as drafting and negotiations around a detailed term sheet that ultimately will be shared with an even broader lending group than in the market-sounding phase. We are targeting conditional approvals from this group in the first quarter of 2023 and expect to address any remaining conditions precedent during the second quarter so we can close on the project financing. While negotiations and evaluations are continuing with our core lending group and their consultants and advisors, we expect these conditions will revolve around the production of testable batteries of the CQP that are accepted by our customers, allowing enforcement of our long-term sales agreements. as well as confirming the technical extrapolation of the CQP's performance to GigaArctic's planned operational model. There will be other conditions, of course, but we expect the aforementioned to be the key ones from a timing-to-close perspective. I should further add that we continue to field and evaluate capital formation opportunities and interests from a wide range of existing and potential commercial, strategic, and industrial partners, as well as financial institutions. This interest appears to be driven by the widespread belief in the robust fundamentals behind the long-term expected growth of battery demand for both the ESS and the EV markets, and the incredible progress Flyer has made since its New York Stock Exchange listing 16 short months ago. We strive for partners who believe in Flyer's mission and can grow along with us as we evaluate and take on projects like GigaArchic, GigaAmerica, the potential for upstream integration, our entrance into the mobility market, and other opportunities. Certainly, our Giga America initiative and the passage of the U.S. Inflation Reduction Act have acted as recent catalysts for such discussions, and we see the ramp up early next year of the Customer Qualification Plan as yet another major commercial and financial catalyst. We are grateful for the ongoing support of all of our financial and industrial partners, including especially our shareholders, and our progress on all fronts, as well as the continuous improvement in the demand outlook for our products, and the urgency of addressing climate change being demonstrated by businesses and governments around the world. With that, I turn it back over to Tom for closing comments.
spk05: Thank you, Oskar, and thank you, Jan-Arve. You both make my life a lot easier, of course. So thank you very much for your dedication to the company and for your 24-7 focus on making us into the global champion we aspire to be. Let me summarize by repeating our key priorities. First of all, we are hard at work in achieving the milestones required to complete our financing efforts, which really resolves around producing sample cells in the customer qualification plan in the coming quarter. This will unlock the giga-object project financing and will also accelerate technology adoption, not only with our existing customers, but also with additional customers in the commercial vehicle and EV space. We are seeing broad interest, as Oscar mentioned, in participating in the capital formation journey for Freyja. And we're evaluating several options to figure out how we can grow in both the European and the North American realm, so to speak, in terms of becoming a global champion for battery cell manufacturing. We are... clearly focusing on converting, not only expanding the conditional offtake agreement, but also converting the ones we have into long-term sales agreements. And we're seeing deep interest across the board to both upsize and accelerate that development linked to the development of the customer qualification plan. We will be executing multiple projects in parallel. We have a team in place which have experience in both planning, executing, and operating multiple highly complicated, multibillion-dollar projects in the energy and energy-intensive industrial space. And therefore, we are confident that we will be able to both develop, finance, and operate multiple facilities in parallel. Right now, our main focus is, of course, on the CQP and GIGA Arctic, while GIGA America will follow in its field as we are evaluating and developing opportunities on the upstream side and the downstream side with our partner, NEDEC, in particular, on module packs and containerized solutions for energy storage applications. We are a partnership-based organization. and we will continuously forge new partnerships along strategic, operational and financial access to enable our initial Giga development ambitions in Norway and America. But there are more opportunities that are being forged as we speak, but we'll take one step at a time and move fast forward. So in short, we're validating, we're scaling, our technology, we're financing it, we're executing it, and we're delivering on our ambitions roughly in line with what we have communicated to the market so far. So with that, I want to thank all of our investors that have stayed with us on this journey. We are looking forward to the future and look forward to updating you on a running basis on improvements and progress as they emerge. Thank you very much for your attention. And with that, I turn it over to Jeff to take us through the Q&A.
spk02: Jeff? Thanks, Tom. We're ready to open up the line for questions.
spk10: Thank you.
spk03: As a reminder, if anyone would like to register a question, please press star followed by one on your telephone keypad. If you would like to withdraw your question, please press star followed by two. And when preparing to ask your question, please ensure you are unmuted locally. So that's star followed by one on your telephone keypad to register a question. Our first question today is from Philip Koenig from Goldman Sachs. Philip, your line is open. Please go ahead.
spk04: Yeah. Hey, guys, and thanks so much for taking my questions. My first question is just a bit on the progress on the financing. It seems like the CQP is a very big piece to unlock both the project financing and also potentially some other things. What about converting some of those off-takes into sales agreements? Is that also part of the agreements you have with some potential lenders in terms of unlocking some of that financing? And is there any timeline you can give us on that as sort of end of Q1 or early Q2, sort of the timeline you're targeting when you start financing, unlock the financing for GigaArctic? um and then and then beyond the beyond that project financing um you know you mentioned that you're also looking at other strategic options um there was an article in the press yesterday about a potential private equity investor um providing you with some financing efforts so um is that something that you're looking at and is that something that's uh what we could expect maybe some news before the end of the year and then my last question is just on the on the relationship with coke in the us um Is it still a 50-50 partnership or are you taking more control there? And what does that mean for your progress on Giga America? Thank you very much.
spk05: Thank you, Philip. So this is Tom. Let me address some of these questions and I'll turn it over to Oscar to chime in on some of the more financial aspects of it. So first of all, we don't comment on rumors in the market, just to sort of be clear on that. But let me sort of pass on commentary to the customer side. So as we have explained previously, we fundamentally believe in a strong market short environment emerging, especially in the ESS space, as ESS producers are being crowded out to a large extent by the massive EV demand. This, of course, does hint to when we're up and running that we can reserve a large part of our capacity for merchant sales. At the same time, we also need to document and demonstrate bankable cash flows against the project finance efforts that we're undertaking. And therefore, we are now noodling around this 60% long-term off-take mark with our customers for GigaArchitect and subsequently for GigaAmerica. We don't see any material challenge in having sufficient demand to meet those objectives. of course our customers have specific requirements as any customer for any battery cell manufacturing facility would have in terms of us documenting and demonstrating that the products we actually will you know shift to our customers show the characteristics that that we promise the good news in that one is that our first legally binding contract with nidec corporation for 38 gigawatt hours that we announced earlier this year which have options to upscale both in absolute volumes over the period up until 2030, but also extended beyond to sort of match it more against the tenor and the project finance. Those volumes, of course, are based upon the initial activities that we've embarked upon together with NEDEC. One of those activities involved cell testing, and we've actually now gotten the first results of those cells. These are sample cells that were provided from 24M in Boston. multiple cells that show very great uniformity between them. I would say first quartile energy density and stellar safety performance. So all of this, of course, provides confidence that the technology itself is proven to be viable. Our co-licensee of the 24-hour platform, Kyocera in Japan, already are in commercial operation with the same technology, albeit with a slightly different form factor and slightly different setups. But all in all, we are, of course, leveraging all of these things to provide comfort to our customers that we can and will produce the cells in accordance with what we are stipulating in the technical specifications for the cells in question. At the end of the day, though, we need to provide sample cells from location. And that is what the customer qualification plans will do. So these are some of the key ingredients in unlocking the final, let's say, bankable project finance based customer agreements, which of course NIDIC is one of, but multiple others are sort of based principally on the same thing. So we are in process of converting several of the existing agreements we have plus more in the making as mentioned. So we're quite confident that we will be able to move forward in accordance with the plan. So maybe on that, I'll hand it over to Oscar to provide some more depth on the additional financing efforts that we're undertaking and how we're sort of seeing the general momentum in this regard. Oscar?
spk09: Thanks, Tom. So I think you hit it pretty well. I would just add that the balance between the long-term off-takes and merchant sales really comes to just, we see better economics, of course, in merchant sales and the long-term contracts require a little bit of less pricing aggressiveness on our side to get those contracts in place. And so there's a balance between the two and our different debt service coverage ratios that we're negotiating between merchant sales, which are more profitable, and long-term offtakes, which are a little less profitable, and managing the two to get to the right debt sizing. So that's really the dynamic that we're working through. You also mentioned on Coke's side, we have taken control of the JV, so we own more than 50%. and we'll be consolidating it going forward. They've been a really great partner in the development, and they continue to be a good partner in the development of GigArctic, and then the site, sorry, Giga America, and the site selection, and then everything we're doing. But the great part about where we sit today is now we can bring in partners that align better to actually having their own battery cell demand that they can use, or other strategic and financial partners to finance this very big project over phases.
spk04: Thank you very much, guys, and best of luck going forward.
spk03: Thank you. Our next question is from Mahit Mandeloy from Credit Suisse. Mahit, your line is open. Please go ahead.
spk00: Hey, morning, and thanks for taking my questions. On the US plans, could you just talk more in detail about the what talks you're having with customers and in the past you talked about potentially having a contract or pipeline with a US customer or large US customer. Would that now be can service with this factory or Norway factory and any other details on that customer would be appreciated.
spk05: Yeah, good morning. So as we have announced previously, we've announced multiple customer arrangements already. Some are named, some are not. And some of them are clearly sort of US-centric. But what I can say, generally speaking, is that in the ESS space, in the US in particular, there is a lot of momentum around rolling out gigawatt-hour scale ESS projects all over the country. And this is obviously something that offers opportunities to companies that want to have certain exposure upstream to that, let's say for us downstream development. So there's multiple opportunities in the existing customer grouping in this regard, both in terms of participating in Giga America per se, if that was to sort of be something we wanted to consider, but maybe more importantly to forge upstream partnerships and downstream partnerships from cell production with companies that want to have security of supply and having product development for end applications and or input factors into cell production located close to one of the larger cell manufacturing facilities in the us so if we uh so we will obviously come back to the market with um specific updates on that when we have formalized these relationships what i can say is with the announcement and obviously leading up to the announcement the intensity of those conversations, not only with our existing partners, but also with a broad variety of new ones, has increased quite significantly. So this is obviously for Freie becoming an asset that we will leverage in a maximum way to both strengthen our industrial development and strategic development and potentially financial development as well. And we will come back to the market with details on this when we have concluded some of these agreements. And we'll do that on a running basis, of course, when they are concluded.
spk10: Thank you.
spk03: Our next question is from Nili Effler from Clarksman Securities. Nili, your line is open. Please go ahead.
spk01: Hi guys, thanks for taking my question. I was wondering if you could talk about two topics. So first is a broader question about your strategy. I've been following you for some while and it's my understanding that you've been very vocal about focusing mainly on ESS and potentially doing OEM deals, but then with this 3Q, I have been passionate that the OEM deal could be closed. Where could we see Friar in a couple of years? Will we see a company doing sort of 50-50 EV, ESS? Or how do you see yourself in, let's say, a week or a year? So that's the first question. And my second question is regarding Viga America. You mentioned there's a $410 million financial incentive package for the security. Could you shed some light on this and what this entails? Thanks.
spk05: Yeah, so thank you for this. Let me take the first question and I'll pass the other question over to Oscar. So on our strategy, we have always said, by the way, that we want to target all market for close, but we are focusing our efforts initially on the ESS markets for the reasons that have been through in the presentation. That's both a technology rationale in that in that 20 gram technology However, competitive against conventional technology across all verticals in our opinion over time, especially competitive for the ESS market since we can build much larger and thicker electrodes. But we do see now that we can use the same form factor that we are using for energy storage applications for select commercial vehicle applications. So think vehicle applications that don't require fast charge, but can sort of charge overnight and have one or two charge-discharge cycles per day. This is a technology that is ideally suited for that, and we already have indications that we can slot these cells directly into modules and packs that fit into these commercial vehicles. So then, of course, we've also always been in deep dialogue with most of the electric vehicle manufacturers, not only from a 24M perspective, but also from potentially other technology solutions as well. And this is something that we will continue to mature and see how we can sort of play into this space as well. We do believe that all of these stakeholders will increasingly want regionalized or localized security of supply. And being a stakeholder that is advancing now in two geographies simultaneously is also increasing, let's call it the optional value of Trinidad as a supplier for many of these stakeholders. So you should expect Trinidad moving forward to continue to accelerate and increase our ESS penetration while we're gradually picking up the pace in the electric vehicle space, and the commercial vehicles will be somewhere in between there. I think we will actually have more demand than we will have capacity to build, at least in the short term. So it's going to be a continuous optimization journey, as we've been saying all along. We optimize for value. We try to optimize what products we produce in a flexible production platform. We are also agnostic or, let's say, flexible in terms of what we actually produce where. But now we've secured prime industrial acreage in Giga America, which, of course, together with our position in Norway and previous established rights to acreage in finland gives us deep flexibility in terms of providing differentiated product offerings across the entire market segment but that may be handed over to oscar to provide some color on the incentive scheme in the us thanks tom yeah it's on the uh corn and 10 million incentive package that ties to spending of course and jobs creation and the the uh the
spk09: the combination of incentives are some level of grants for things like the acquisition of land, as an example, but some of those grants are over time. But mostly they're tax abatements around sales tax and also county level property taxes and related taxes. Again, it really tied to the total spending package of really the multi-phase project over the next several years, quite a few years, for the $2.6 billion total spend that the package is tied to. So it's spending on plants, equipment, all the phases, and then job creation is how you realize those incentives over time.
spk10: Thank you.
spk03: Our next question is from Gabe Doubt from Cowan. Gabe, the line is open. Please go ahead.
spk07: Thank you. And hey, everybody. Thanks for all the prepared remarks. Tom, I guess I was just curious if you could talk a little bit about maybe some of the supply chain issues or maybe no issues, but that are maybe impacting things. You know, you mentioned there's still some equipment that needs to be delivered at CQP by the end of the year. So I guess I was just curious if you could discuss a bit on what you're seeing around supply chain and also on the labor front, if there's anything to note there. As it seems like, at least here in the US, some folks have been highlighting a shortage of key talent.
spk05: Yeah, so great question. So let's call it three attributes to that one in terms of resources to do all of this, right? So first, machinery to CQP. As Yamar even mentioned, we will have the latest kit delivered before Christmas. And then we will start to connect the dots, so to speak, on all of it immediately after New Year's. So there is no sort of delay or any significant kind of issue when it comes to having the machinery on site. We already start to mix cathode and anode material and the slurry mixing etc will be heating up so to speak the formation and aging machinery and so on and then we will be implementing the casting and unit cell assembly machine which is the heart of the whole thing and that is as I said scheduled to be delivered before Christmas so we don't see any real issue related to that of course it's not trivial any of this electrochemistry is hard but we have you know very detailed plans very strong support from a broad variety of stakeholders, including existing licensees of the 24M technology that have sort of been through this journey, plus, of course, the own expertise that we have in-house, plus the expertise from 24M. So we're sort of working quite diligently across multiple verticals to ensure that we can rapidly start producing these initial cells. Then, of course, it's the raw material front. And as we did mention in the report, we have secured nearly all raw materials we need for the CQP up until 2028. We've secured it completely for the first couple of years, so there's no sort of issue there. And we are two thirds of the way there when it comes to materials for the GigaArctic, at least up until 2028. Then of course, we're also looking at establishing our own cattle manufacturing facility, which of course would strengthen that and working diligently across the entire raw material spectrum with strong stakeholders like Hitochu, and others that we have in the making, which we will be announcing on a regular basis, is something that gives us very strong comfort that the supply chain and raw material supply into gigascale production is feasible, but you need to be very active across multiple segments. And as we are localizing and regionalizing that capacity more and more, we're getting of course stronger and stronger in terms of having secured our supply chain so to speak core element of course both on cost and decarbonization as mentioned when it comes to the people front knock on wood we have so far been able to recruit the people we need for the customer qualification plans and there's also very strong interest to join us in our journey on giga arctic and already quite a lot of incoming requests uh from a Giga America point of view, I want to sort of just remind everyone that our 20 gram platform is a highly also labor optimized facility. As we did mention when we went public with the Giga Arctic sanctioning back in June, we can produce three times as many batteries per employee. with the 20-gram technology as conventional lithium-ion battery facilities do at much lower and smaller space, floor space, so to speak. So even though the renderings that Jan-Arge showed you taking over half of lower Manhattan, it's still four times smaller-ish than a conventional facility having the same capacity. And that means that the labor is more engineering-prone and sort of somewhat higher average education, even though we do need, you know, a broad variety of disciplines into the facility. So, so far, knock on wood, we haven't really seen an issue on any of these, but that is not to say that it's trivial. It is quite challenging and we need to, of course, leverage all of our experience and all of our push in securing machinery, raw material and people and do multiple pathways to ensure that we do that. that's why we built up this project execution and operational excellence centric team so that we could tackle these from our opinion obvious challenges that you will face when you build battery facilities and so far i think we're on good track so thank you for that question thanks tom um i guess if i could that's that's really helpful i guess if i could just also ask a follow-up on the um maybe shifting gears to the technology side you mentioned
spk07: The 24M cells exhibiting top quartile energy density. Was just curious if you can maybe provide a little more color on that. And then also, you know, you noted how the technology is applicable to certain applications with an automotive, maybe more so commercial versus passenger. But then was just curious on the passenger front if there's anything you can talk to around the technology that you're eyeing for that end market. Thanks, everyone.
spk05: Yeah, so on the testing, we will be working with our customers to sort of provide more specific updates to the results of that in the coming, in the near future, so to speak. But we did see that we were in the top end when it comes to gravimetric energy density. And then we are seeing very stellar safety performance of the tests. These are LFP cells of decent sort of, let's say, form factor size, and we're building them slightly larger. But the safety test in particular was stellar, which is very encouraging. But even though we have really just recently started the optimization journey on the cathode and the anode side for our LFP cells, we're already seeing tests that sort of show them in the first quartile, so to speak, relative to conventional. And it's, of course, extremely encouraging as we also have a broad variety of optimization opportunities up our sleeve, so to speak, which we're, of course, testing and working on as we speak. And it's also something that we will be using in the customer qualification plan to continuously try to optimize the products that we push to the markets. So that's kind of on that front. When it comes to applicability in electric vehicles, I think it's fair to say that there's a lot happening in this regard, which we're not at liberty to disclose any details around at present. But generally speaking, the 20 gram technology is superior when it comes to lower sea rate applications, meaning a slower charge and discharge remember most batteries have actually a quite slow discharge you know you know discharging all your energy over half an hour in a car you want it actually to last for at least six seven eight hours so actually discharging that energy quite slowly but it's the speed at which you charge it which is kind of the issue especially for select passenger ev applications but we do see many vehicle applications not only in the commercial vehicle front but also on the electric vehicle front that doesn't require fast charge application so therefore we can probably leverage the thickness and the size of the electrodes in its current form or slightly optimized form and still have a fairly large chunk of the electric vehicle market being relevant for us right but this is an educational journey to some extent in terms of our existing product spectrum and then of course we're also working on how to optimize for the fast charge application. Specifically, this evolves around finding better electrolyte solutions that really speeds up the ionic conductivity, to use a technical term, of the diffusion of the lithium ions through the cathodes and the anodes. And we're seeing some quite interesting results in this regard. But we will, of course, come back to the market and update the market on that. But this is obviously also something that some of the large OEMs find increasingly interesting also in the context of having localized and regionalized security of supply. So we'll be updating you on a regular basis on this, but momentum is strong.
spk02: Awesome. Very helpful. Thanks, everyone. Thanks, Gabe. Daisy, I believe we're ready for one more question, please.
spk03: Of course. Our last question today comes from Tyler D. Mateo from BTIG. Please go ahead. Your line is open.
spk02: Tyler, can you hear us?
spk03: I believe Tyler has just disconnected, so I'll hand back over for any closing remarks.
spk08: Great. Well, thank you all for your interest in the company. We look forward to catching up with you over the next several days. Please feel free to reach out with additional questions, and then we'll see you on the road this quarter. Thanks for your time.
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