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spk00: and welcome to QuantumScape's fourth quarter 2020 earnings conference call. My name is Cheryl, and I'll be your conference operator today. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. Thank you. John Sager, QuantumScape's head of investor relations, you may begin your conference.
spk04: Thank you, Operator. Good afternoon and thank you to everyone for joining QuantumScape's fourth quarter 2020 earnings conference call. To supplement today's discussion, please go to our IR website at ir.quantumscape.com to view our shareholder letter. Before we begin, I want to call your attention to our safe harbor provision for forward-looking statements that is posted on our website and is part of our quarterly updates. The safe harbor provision identifies risk factors that may cause actual results to differ materially from the content of our forward-looking statement for the reasons that we cite in our Form 10-K and other SEC filings, including uncertainties posed by the difficulty in predicting future outcomes. Joining us today will be QuantumScape's co-founder, CEO, and chairman, Jagdeep Singh, and our CFO, Kevin Hetrick. Jagdeep will provide a strategic update on the business, and then Kevin will cover the financial results and our outlook in more detail. With that, I'd like to turn the call over to Jagdeep Singh.
spk07: Thanks, John. Welcome to our first earnings call as a public company. Earlier today, we published a letter to our shareholders summarizing the major developments from the last quarter and fiscal year. If you haven't already read it, we encourage you to take a look, as our shareholder letter will be the primary way we report our progress to you. In addition to the SEC website, you can also find it on our company investor relations website, I won't repeat all of the contents of the letter here, but I would like to call your attention to a couple of key highlights. First, for those that are new to the QuantumScape story, some brief background. We were founded in 2010 out of Stanford with a mission to revolutionize energy storage and enable a sustainable future. The first application we focused on is the transformation of the automotive power train to an electrified version, which we believe represents both a very important part of the solution to the emissions problem, as well as an opportunity to create tremendous value over the coming decades. Over time, we expect to push into other markets, including stationary storage for the power grid and consumer electronics. We are a pioneer in the development of a new type of battery, the solid state lithium metal battery. Our technology replaces the polymer separator used in conventional batteries with a solid-state ceramic separator, enabling us to replace the carbon or silicon anode used in these conventional cells with an anode of pure metallic lithium, which in turn allows us to make batteries with higher energy density, greater driving range on a single charge, faster charge times, and improved safety while offering long cycle life. We believe these are some of the fundamental issues holding back widespread adoption of battery electric vehicles. The beauty of our approach is we deliver these benefits not by increasing the complexity of the battery, but by simplifying it, eliminating the anode layer of conventional cells. As a result, we believe the cost of these batteries at scale can actually be less than conventional batteries at the same scale. Last December, at our battery showcase event, we unveiled for the first time the performance data of our single layer cells, making clear the benefits of this lithium metal approach versus the traditional lithium ion approach. In particular, we showed data showing the cells were capable of achieving long cycle life. Now at over a thousand cycles to about 90% of initial capacity while operating at near room temperatures of 30 degrees Celsius and high current densities or rates of power of one seat. In addition, We shared data showing these cells were capable of fast charge rates of 15 minutes to 80% state of charge, excellent performance relative to conventional cells on the most demanding drive cycle, such as those found on racetracks, and operation at low temperatures, including cycling data at negative 10 degrees Celsius. We believe this data marks a new high watermark for the solid-state battery industry and are unaware of any alternative solid-state approach with better performance results. Having demonstrated this level of performance on our single layer cells, our goal for the coming year is to stack these layers up and make multi-layer cells, forming the basis for our commercial target cells. We are therefore very pleased to report for the first time that we have assembled four layer cells in the 30 by 30 millimeter form factor, and that these cells have reached close to 800 cycles to over 90% capacity retention at both 1C and C over 3 rates at 30 degrees Celsius, substantially similar to the cycling performance we showed in our single layer cells and demonstrating it is possible to stack our single layer cells without adversely impacting cycle life and capacity retention of the cells. We used 30 by 30 millimeter cells made from separators cut from our standard target commercial area separators because it allowed us to effectively quadruple our current output as we work to scale up our engineering line capacity. While there is still a lot of work to be done, and we could encounter new challenges as we increase our layer count, this is an incredibly important result, and we are excited to have this so early in the year. We now need to make these multi-layer cells using our commercial area 70 by 85 millimeter layers, increase the number of layers, aiming first for four layers and subsequently for eight to ten layers by year-end, optimize the manufacturing processes, and address any new challenges we find. We believe that if we achieve these milestones, we will be on track to achieve our goal of delivering prototype battery cells to our customers in 2022. The other thing I'd like to draw your attention to is that based on this recent progress and to help with further scale-up, We have decided to build our own pre-pilot line facility in San Jose, which we call QS0. QS0 is intended to have a continuous flow, high automation line capable of building over 100,000 engineering cell samples per year, and we expect to be producing cells on this line by 2023. QS0 will help provide the additional capacity we need for our development work, and will enable us to accelerate work on the next generation of manufacturing tools. It will also provide capacity to make enough batteries for hundreds of long-range battery electric test vehicles per year. This will allow us to provide early sales to VW, as well as other automotive partners, explore non-automotive applications, and help de-risk subsequent commercial scale-up. With that, I'll hand it over to our CFO, Kevin Hetrick, to say a few words about our financial performance. and then open it up to Q&A. Kevin?
spk05: Thanks, Yogi. Before I give perspective on our financial outlook for 2021, I'd like to first give a little color on our fourth quarter and full year 2020 results. In the fourth quarter, our operating expenses were $30 million. Excluding stock-based compensation, operating expenses were $22 million. In accordance with U.S. GAAP, we were required to take a non-cash expense of $665 million relating to warrants and Series F preferred stock issued prior to the business combination, bringing our GAAP net loss in the fourth quarter to $695 million. These preferred warrants and Series F preferred stock, originally classified as liabilities in accordance with U.S. GAAP, were subject to non-cash fair value measurement at issuance and at each reporting period. The final remeasurements were done at the close of the business combination. As a result, there will be no further remeasurements related to these. On a full-year basis, our operating expenses were $81 million, or $64 million, excluding stock-based compensation. Our GAAP net loss for fiscal year 2020 was $1.1 billion. Of this amount, $1 billion represents the non-cash fair value adjustment of the preferred stock and warrants in accordance with U.S. GAAP previously referenced. With respect to share count, I'll be providing numbers rounded to the nearest 0.1 million shares We ended 2020 with approximately 364.0 million shares of common stock outstanding. As of December 31st, 2020, the company had a total of approximately 466.6 million issued and issuable shares, including those issuable upon the exercise of warrants, shares issuable upon Volkswagen's second tranche investment, and shares issuable to employees and consultants upon the exercise of outstanding options or vesting of RSUs. Note that all the aforementioned shares, warrants, options, and RSUs have been registered on the company's S4, S1, and S8 filings. With respect to cash, we used $37 million of free cash flow in the fourth quarter and $85 million for the full year 2020. We anticipate free cash flow burn to be in the range of $230 to $290 million for 2021, of which approximately 40% to 50% is CapEx. including investments in QS0. These investments will support our multilayer work, advanced production process maturity, notably to make our solid state separator films and for cell assembly, and support customer engagement. We expect to use less than $60 million of net cash in 2021, assuming receipt of proceeds from the Volkswagen financing and assuming exercise of public warrants. This would allow us to enter 2022 with a liquidity position of over $900 million, sufficient funding we believe to fund us through production. Of course, the pace with which we are able to spend will depend on several factors, including the ability to ramp headcount and the maturity of our production processes, including the level of its automation. With nearly $1 billion on the books as of Q4 2020, the strength of our balance sheet we believe will give us the flexibility we need to execute on our plan through commercialization. In summary, we're excited with where we are and look forward to the challenge ahead. We'd like to thank our investors for their support and belief in our mission to help usher in the battery and electric vehicle revolution. With that, I'll pass it back over to John.
spk04: John? Thanks, Kevin. As a matter of practice, going forward, we'll begin the Q&A portion by asking our management team a few of the most pertinent questions on the minds of investors. For future reference, investors can submit questions through our investor relations inbox by emailing ir at quantum scape dot com. This quarter's most frequently asked questions are as follows. Competitor progress and announcements. It seems like others are going to get to market before QuantumScape and have already achieved multilayering. Can you talk about your progress as it relates to that of others like NIO, Toyota, and Solid Power?
spk07: Sure. The key point to note here is that it doesn't help to have a multilayer cell that uses a single-layered building block that doesn't work. It will be the equivalent of trying to put up a multi-story building when you haven't been able to make a single-story building without collapsing on itself. So we haven't seen any data from any other competitor that has shown a solid-state separator capable of delivering long cycle life at high current densities without requiring elevated temperatures. As a result, the players you just mentioned fall into one of two categories. Those that are reverted back to a carbon-based data, which of course results in a loss of many of the key benefits of the solid-state lithium metal architecture, including energy density, fast charge, and cost. and those that use lithium metal but can only work under compromised test conditions that make those cells not commercially viable. We believe we're the only player to have shown a solid-state lithium metal single-layer building block capable of meeting the key requirements of long cycle life, high turn density, and un-elevated temperatures. So for those who are interested in learning more, we've actually published a survey of the solid-state battery density, and you can find it on our website at ir.quantumscape.com.
spk04: Okay, great. Next, can you explain the different timelines between 1C and C over 3 charging?
spk07: Sure. This is terminology used by the battery industry, and it's simply a way to refer to the rate of charge and discharge. The letter C in that description refers to one charge or discharge, and the number refers to how many such charges or discharges can be performed in one hour. So 1C means one charge or discharge per hour. C over 3 means one-third of a charge or discharge in one hour. over one full charge or discharge in three hours. And note that higher C rates are more stressful on the battery, adversely impacting cycle life. So lithium-ion battery cycle life testing is often quoted at C over three rates. Because the quantum skip technology is robust under high power conditions, we're actually able to run out cycle life tests at one C rate, which allows for faster data connection and shorter development cycles. Finally, I'll point out that with conventional batteries, they can either be designed to be energy cells with high energy but low power, or power cells which have high power but low energy. One of the unique things about the QuantumScape technology is it's an energy cell with a target of 1,000 watt-hours per liter, higher than the cells used in today's best-selling EVs, for example, which are around 700 or so watt-hours per liter, but can still be charged at high rates, as shown by our 4C 15-minute charge data.
spk04: Okay, great. Our next question is, how will future improvements in lithium ion chemistries affect your batteries?
spk07: Sure. So most of the improvements in the world of lithium ion stem either from better cathodes or better anodes. On the cathode side, we're completely agnostic. So we're able to take advantage of any improvements on cathode technology, including material-level improvement, such as higher nickel content, as well as manufacturing-level improvement, such as dry electrode processing. Now, because these improvements are being driven either by material suppliers that sell to us, or in some cases, automotive OEMs to whom we sell to, we believe we'll have access to both of these sources. So neither of those is a competitor. On the analyst side, The improvements are related to adding a certain amount of silicon to the carbon anode, since silicon can hold more lithium than carbon. However, silicon expands and contracts so much during cycling that it adversely impacts the cycle life of these cells. So the amount of silicon used in these cells is limited to a fraction of the anode. As a result, this approach only provides a small benefit in energy density. By contrast, a lithium metal approach eliminates 100% of the carbon or silicon in the anode, resulting in a significant increase in energy density. Thus, we see our solid-state lithium metal approach as being able to deliver greater density than conventional lithium ion even into the future.
spk04: Okay, and our final question. What makes you feel like you'll have a sustainable cost advantage over the rest of the industry?
spk07: So in our architecture, we eliminate the traditional carbon or silicon anode entirely, which means we get rid of the anode materials, the anode electrode manufacturing line, and the anode formation process, which is a multi-week-long process in which a chemical side reaction is allowed to occur between the carbon particle and the liquid electrode. As a result, given we believe our separator will be on the same order of magnitude and cost as conventional separators, we expect that the quonset approach will actually be lower cost than conventional lithium-ion cells at any given manufacturing scale.
spk04: All right, thank you, Jagdeep. We're now ready to begin the Q&A portion of today's call. Operator, please open the lines for questions.
spk00: Thank you. If you would like to ask a question at this time, please press star 1 on your telephone handset. Our first question comes from Mark Delaney from Goldman Sachs. Please go ahead. Your line is open.
spk08: Yes, good afternoon. Thanks very much for taking the questions, and I'm very happy to have the company having its first earnings call. I wanted to ask about the pre-pilot facility that you announced today and the additional sales it's going to give the company to work with. Do you think that changes your outlook that you articulated in the investor deck in terms of What kind of revenue the company can be generating, either in terms of perhaps generating revenue somewhat sooner than the current 2024 projection or potentially higher in magnitude compared to what you previously outlined?
spk07: Yeah, hey, Mark. This is Jack. Thanks for the question. So the QS0 is really designed to produce cells for test vehicles. So we don't expect it's going to have a material impact on revenues directly in the sense that it's going to make cells that we will provide to our automotive OEMs to make test cars. But it does have an indirect impact in the sense that it increases the probability that we can have a successful rollout of QS1 and subsequent manufacturing builds. So that's the way I would think about what QS0 is designed to do.
spk08: That's helpful. Thanks. And then in terms of the run rate on operating expenses that the company guided to for this year, so I think 50% to 60% of the cash outlays that you put in your shareholder letter, I think the implied operating expenses in 2021 are a little bit above what is implied in the last investor presentation for 2022 operating expenses. So it seems like perhaps the company is taking up its planned investment levels, and I assume that's correlating with this QS0 and some of the ability the company has to do a bit more. But I am hoping to better understand to what extent you are, in fact, taking up your operating expenses compared to the prior plan.
spk07: Kevin, you want to take that one?
spk05: Sure. Mark, as you would have seen from our current run rate, we spent $27.2 million in operating activities in Q4 and $10.2 million in CapEx. And as you correctly noted, the guidance was $230 to $290 million in 21 with about 40% to 50% being allocated towards QS0 activities. QS0 is incremental to the plan, so there will be the OpEx portion. You would expect it to be a little higher, leaving 22 and beyond. We don't have specific guidance on that number in this call.
spk08: Understood. And just lastly, in terms of some of the operational milestones, thank you for the update on the multilayering. That's good to learn more about. The other area that was discussed by the company was in terms of getting the yields up on the separator manufacturing. I don't know if there's anything on that front that you're able to share with us today.
spk07: Yes, this is Jack. There's nothing we're sharing today on that, but I think the important milestone really was demonstrating that when you take single-layer cells and make multi-layer stacks out of them, in this case, four layer stacks, that the capacity retention and the cycle life behavior doesn't change materially. So that's really what we were excited about. And as I pointed out in the opening remarks, obviously, there's more work to be done there to scale up production and to have the layers be in the actual production size of 70 to 85 and to deal with any other unfortunate issues that might arise as we complete that process. But the core result that the single layers can be, in fact, stacked into multivariate cells with data that looks substantially, you know, very similar to what the data was that we showed in single layer cells, that's very exciting to us. And to have that this early in the year just means that we have, you know, the rest of the year to accomplish the rest of those tasks that I mentioned in terms of scale-up.
spk08: That's very helpful. Thank you.
spk07: Sure.
spk08: Great questions.
spk00: Thank you. And our next question comes from Adam Jonas from Morgan Stanley. Please go ahead. Your line is open.
spk06: Thank you. Hello, everybody. Hey, Jagdeep. First, great disclosure. Thanks for that. A couple of questions. On QS Zero, I think it gives you, to your point, a chance to test prototypes with other, say, non-Volkswagen customers and potential customers as well. I'm curious if today you're able to update us on the status of any discussions with QS With non-VW customers, as I imagine your IPO, the listing of the company itself and all the attention around it can create a lot of interesting commercial benefits. I'm curious if you've seen an uptick in those discussions or anything you care to update us at this time. Then I have a couple of follow-ups.
spk07: Hey Adam, thanks for the question. Yeah, so as you correctly guessed, the somewhat higher profile that we have now that we're public has clearly resulted in a meaningful number of imbalance. that we're working through. We have said before that we've actually had ourselves tested by multiple automotive OEMs. So VW obviously is the only one that we've announced. But I think that, as you know, the VW deal, as great as VW has been as a partner, that deal is non-exclusive. So we are free and we fully intend to work with other OEMs in the fullness of time We're not announcing anything on that front today, obviously, but we fully expect to work with multiple OEMs over time. And beyond automotive OEMs, we're also seeing interest from other sectors, some of the ones we mentioned earlier, including the you know, stationary storage for the grid as well as consumer electronics. And we're, you know, right now we are constrained by our ability to just produce enough cells to provide customers with cells to test. But as we bring QS0 online, we are able to produce more cells. That's one of the big benefits of having that production capacity is we will, in fact, be able to make this technology available to a broader set of customers that have expressed interest.
spk06: Thanks, Jagdeep. Next question is on the factory location of QS1 and the expansion in Europe. I think most people on this call would expect that it might be in Germany. I don't know how you're thinking about that, particularly as you're seeing other battery capacity investments being closer to renewable sources of energy. You're seeing Norway get a lot of it. So I'm curious if, again, I'm not trying to ask you to break new news that you didn't put in your letter, but how you're thinking about proximity to Volkswagen versus renewable sourced at the source in manufacturing for what is a very energy-intensive process.
spk07: Thanks. Yeah, it's a great question. And I think what I can say is, you know, those are exactly the kind of, I think, the kind of issues that we, you know, we need to balance as we make those final deciding decisions. So on one hand, the trend in the industry is to locate battery manufacturing close to where the vehicle manufacturing is. For example, there's a Tesla Gigafactory. On the other hand, you also need to balance the supply chain aspects of deciding that there's a managed power. It also includes other supply that goes into the factory. It includes labor. So it's a multidimensional kind of a problem. And I think the main takeaway is that the facility is likely to be close to where the vehicles are manufactured. But the question of how close is going to be a function of how those other dynamics come into play.
spk06: Okay. And just a final one for me, Jack. You mentioned other markets. When I hear you talk about the energy density, both gravimetrically and volumetrically, Of course, there are direct implications to electric aviation in the EV toll market, and some of the scenarios we're running, at least, the size of those markets could be, in some cases, very, very large, in some cases, maybe even larger than the automotive market. I'm curious what you think about that market potential of eVTOL or urban air mobility. Is it something that you at a high level are exploring, even though you don't mention it and call it out specifically in your prepared remarks?
spk07: Yeah, that too is a great question. EV toll is definitely a very interesting new emerging area, and we are, in fact, in discussions with players in that sector. It's a little too early for us to be able to predict just how big that market will be and when it starts taking off. But as you correctly surmised, that market is extremely sensitive to the gravimetric energy density in particular, because that obviously impacts the whole application pretty significantly. And so, the energy density benefits that we're offering uh make it a really compelling uh fit for that application so i think what it comes down to in the end is you know we have you know in the near term at least in very near term we're going to be somewhat um capacity constrained and what that gives us the luxury of is really being able to pick those markets that have uh the most uh compelling uh fit uh in terms of the overall application the economics for us uh for our customers and so on but as we make progress on on um on sort of narrowing down some of those near-term expansion markets. We'll be sure to communicate them as well, Adam. Adam Werner Thanks, Jagdeep. Jagdeep Kumar Absolutely. Operator, if there's another question?
spk00: Please go ahead. Our next question comes from Rob Lachey from Wolf Research. Please go ahead. Your line is open.
spk02: Hi, everybody. I wanted to ask just about the gating factors in testing and moving to 8 to 10 layers. Maybe you could just give us a little bit of color on what the incremental challenges are that you'd need to overcome? I'm assuming that it's the volumetric changes that those cells encounter when they're being plated with lithium. And also, how many layers do you anticipate in the final commercial form factor? And what are the biggest development challenges that you need to overcome in order to achieve that?
spk07: Yeah. Hey, Rod. It's Jagdeep. So, you know, the number of layers is a little bit of a variable commodity. It depends on which customer and which pack design and which module design we're talking about. So there's no one number I can give you there. I think if you say there's going to be a few dozen layers in virtually every flavor of cell that we make for different OEMs, then you'd be in the right ballpark. Three dozen kind of captures it. It's going to be more than a dozen and less than a few hundred, somewhere in that range, but a few dozen is the right range. As far as the main challenges to get there, to be quite candid, the major issue, not issue, the major problem The need that we have in the very immediate term is just to make more of these materials so we can make more cells. Multi-layer, you know, what isn't generally appreciated in multi-layer is that, you know, if you're making multi-layer cells, you need a lot more layers. So a four-layer cell, for example, needs a quadrupling of your manufacturing capacity. A 10-layer cell needs an order of magnitude more capacity. We resized our engineering lines to be appropriate for the development work we're doing on single-layer cells. Once we had the single layer data that we shared with the world in December, we started wrapping up production tools and equipment to be able to produce more cells. But unfortunately, a lot of those tools, you know, the good news is we can acquire those tools from existing suppliers, so we don't need to make those tools ourselves. But on the downside, those tools have lead times associated with them, so you can't just, you know, turn on its figure and make more cells overnight. So there's a lot of tools waiting on that have been ordered, that need to be delivered, turned up, configured. That's really probably the most immediate gating item to get multivariate cells. Once we get that capacity installed, we're going to be able to produce more cells, do the appropriate engineering work to finish that development cycle. And once we get to our target of 8 to 10 layers by year end, at that point, we will have – As I mentioned in the prepared remarks, the building blocks to be able to then build the samples we provide to customers.
spk02: Great. Thank you. And can you just give us an update on your latest thoughts on scaling, just assuming that everything goes well with the pilot line in 2024? Presumably you're going to want to scale this as much as possible, right? uh with um a variety of um of cell manufacturers so what what could the economics of that look like um is you want to expand beyond 2024. well i mean just to make sure that's the question that you're asking about kind of the business model so for how we might do uh more production uh capacity or is that yeah i i would i would assume that you would want to um leverage capacity that's being built by a variety of different cell manufacturers elsewhere, right? So that would involve some licensing arrangement. It would be challenging to manage that all by yourself.
spk07: Yeah, so what we've said is there's sort of a handful of key fundamental ways you could do production, right? So the simplest way is to do it all yourself. That's one of the ones you mentioned, right? The next way is we have this JV-type model that we're doing with Volkswagen. In that case, we're obviously bringing the core solid-state battery expertise, and they're bringing a lot of general high-volume, high-quality manufacturing background. There are other models where we can actually outsource some of the components that go into our cells. So, for example, the really unique part of what we're doing is, of course, the solid-state separator. Some of the cathode work could potentially be done by third parties, so we're obviously exploring that. You know, the ultimate, I think, in terms of our choices would be if we were to just license the IP to a third-party manufacturing company. And the challenge there, of course, is, you know, it's just IP protection, IP diffusion, right? You don't want to license IP to somebody, you know, unless you have super high confidence that, that IP is going to be protected. Otherwise, you're just kind of diluting the fundamental, you know, the crown jewels of the company in some way. So I think what we're doing is trying to just look at the economic tradeoff and balance between those different, you know, models. You know, for sure, we're doing the JV with BW. For sure, we're doing our own production with 2S0. And, you know, we have no particular desire to – spend any of our capital or any of our team's energy or bandwidth to do things that can be done better elsewhere or that are already being done elsewhere. We want to basically do things that are not available elsewhere. So if we can buy something that has sufficient quality and liability to meet our needs from a third party, we will absolutely want to pursue that. It's only if somebody doesn't make something that we need that we want to do it ourselves. That's a general philosophy that you can assume we will use going forward on that front.
spk02: Okay, great. Thank you.
spk07: Sure thing.
spk00: Thank you. And our next question comes from Ben Callow from Baird. Please go ahead. Your line is open.
spk01: Hey, congratulations, guys, on the first conference call. Thanks for all the information. You know, one of the things you talked about, and we're still trying to understand the layering. Congratulations on that step. Once you have the sufficient number of layers, how difficult do you anticipate it is transitioning into a pack? That's my first question.
spk07: Yeah, hey, Ben, how are you? Thanks for the question. So, you know, the number of layers, as I mentioned earlier, that we have in each cell is going to be really a function of what the particular pack and module needs. So it will kind of be designed with the pack and module in mind. And once you have that cell with the right number of layers, then the pack-level design is, relatively speaking, straightforward in the sense that The electrical behavior of these cells is similar to what is already being used. We use the same cathode material that's conventionally being used, so the discharge profile electrically will be very similar. The thermal behavior of these cells we expect will be better because The lithium metal that makes up our anode is a much better conductor of heat than a traditional carbon-based anode is, so we can shuttle away heat much better. Also, our separator is much more tolerant to heat. It's stable to very, very high temperatures. The BMS interface should be, you know, very similar to conventional BMSs. So we think that integrating at the pack level should be, you know, it requires engineering, of course, but because the cells have already been designed or will have been designed to the particular module and pack specs, we don't expect any fundamental challenges there. The real key is, you know, just being able to, you know, complete this multi-year development that we showed the really big data on earlier today.
spk01: Okay. You know, you mentioned consumer electronics and then stationary storage and potentially other markets. Could you talk about, you know, why, because maybe it's counterintuitive to me, but consumer electronics seems like it could be the easiest market to go after with, you know, the less, you know, less, you know, onerous requirements around, you know, the packs or the batteries themselves. But maybe that's just, you know, the Volkswagen relationship that is, you know, moving you towards the auto market first.
spk07: No, it's a great question. I mean, we spent many years, we spent a lot of time in the early days of the company trying to figure out, you know, which markets we should go after. You know, look, there's many battery companies that try to do it all, and our fundamental belief as a startup, you know, we had to focus. You know, trying to do too much just results in doing nothing well. We wanted to, you know, we'd rather, we thought we'd rather PICK A SMALLER NUMBER OF MARKETS BUT REALLY SOLVE THEIR PROBLEMS REALLY WELL. THE QUESTION IS WHICH ONE DO WE PICK IF WE CAN'T DO THEM ALL? AND BASED ON OUR ANALYSIS, CONSUMER ELECTRONICS WITHOUT A DOUBT IS A MUCH EASIER MARKET. DOESN'T NEED THE SAME POWER DENSITY. NO ONE'S GOING TO NEED 4C CHARGES, 15-MINUTE CHARGE FOR A CELL PHONE. THE OPERATING TEMPERATURE DOESN'T NEED TO BE NEGATIVE. Whatever, 10, 20, 30 degrees, you know, you're pretty much going to be at positive 10 degrees Celsius as a standard spec. You know, you don't need as many layers. It's just easier in so many ways. Having said that, we saw that the size of the market was just so much bigger with the automotive application. You know, each car, each long-range BEV, for example, a Tesla Model S class vehicle, has the equivalent of 10,000 iPhones worth of batteries, right? So that's four orders of magnitude bigger, which is massive, right? So if you look at Apple's volumes, I haven't checked recently, but even if Apple sold something like 200 million phones a year, you know, that would be really the size of a small pilot line. That's not much, you know, more than our first VW Phase 1 model. pilot line will be producing. So it's a very small one compared to what we do here. The second point we make is in terms of impact to the application, you know, cell phones, you know, they'd love to get more battery. You know, the consumer devices would love to reduce the volume taken up by the battery by, say, a factor of two so they can squeeze in more functionality and more electronics into the phone. But they have perfectly fine phones right now that they're selling, you know, a lot of. Whereas in the automotive space, we felt like these benefits are really disruptive enablers of a much higher level of penetration. So between the combination of the importance of our technology in the automotive sector compared to others and the size of that sector, we locked in on that particular space pretty early in our life cycle. And I think overall, it was a good decision because we were able to get this B2B partnership, which It's been phenomenal for us, as you guys already know. And I think, you know, we've executed exactly what we were hoping, which is that we pick one problem and we think we're solving it well. And having solved it, because in some ways, as you pointed out, this is the hardest of the problems, expanding to the other sectors is really in some ways a move downhill. So we feel like we're well-positioned, you know, now that we have this sort of high ground to go ahead and expand into other segments over time.
spk01: That's very helpful. And just if I could sneak in one more, thank you for the helpful landscape paper here. I was wondering how difficult or how you guys get the information from your competitors. Are you able to actually get cells and test them? And then vice versa, are people out there able to get your cells and test them as well?
spk07: thank you yeah so um absolutely great questions all so um first of all many of the other players in the solid state battery space um are either startups or um uh or small research labs within big companies uh that publish their results so a lot of the a lot of um what those guys are doing we have you know uh directly from the source based on papers they published and and tweets they've issued and and you know websites they put up so we know you know what the numbers are they're sharing The other way we have information about this is not just by reading papers, but remember when we started the company, we were looking for the solid-state material. We didn't have an answer back then 10 years ago, so we literally had to go through many, many different materials in our own lab. We made lots of sulfides. We made lots of polymers. We did a lot of work on a lot of different types of approaches. In doing that work, we were able to firsthand understand what the limitations were and what the issues were. When people talk about the sulfides, for example, that's a pretty popular class of material. The sulfides have one big advantage, which is that they're very highly conductive. They're about the same conductivity as today's liquid electrolytes. That's what put them on the map. People got really excited that we have solid-state materials that can conduct lithium ions as well as liquids can. The problem is sulfides, A, in our work, we concluded they would not prevent dendrites. and B, they're the least stable of the commonly used solid-state materials. So if you go above, say, 2.4 or so volts or below 2.2 volts or so, you see fundamental instability leading to chemical side reactions and impedance or resistance growth, which eventually obviously kills the cell. So because the cathode and anode both are, you know, at higher and lower voltages, respectively, compared to the sulfide. So we did a lot of that work in different materials. That's what's given us the confidence to know that this is not going to be an easy problem. And many people out there, many groups are working on material systems that in our view are dead ends, where we hope for their sake they can find ways to make them work, and certainly the market is big enough to where multiple players will absolutely be able to play in the space. It's such a massive market, but... having other entrants is in no way going to reduce our opportunity. But to be candid, we just haven't seen anything out there that's compelling. One thing we will point out is that a lot of people make claims, a lot of people have announcements, but Very few people actually have shown data. And of the ones that have shown data, the data makes clear that it's compromised test conditions. So if you look at the key requirements, as mentioned in that solid state landscape overview, you need to have a solid state separator that can run at high current densities, like enough to drive a car and to charge fast in 15 minutes. You need to run at regular temperatures, like 30 degrees Celsius, not just elevated temperatures like 70 or 80 or 60 degrees Celsius. And you need to have long life. It has to go 800,000 cycles with minimal degradation. And no single player that we are aware of, other than what we've shown, has shown data comparable to that. So this is also why we talked about the fact that building multi-layer cells with a building block layer that isn't capable, it's just not a sound strategy. You're not going to. You know, if you can't make a single-story building, you know, stand up. You're not going to solve that problem by trying to make a multi-story building. So, you know, that's kind of how we know about these competitive alternatives is a combination of having seen papers published by those groups directly and then our own work in many of these material systems in our own labs.
spk01: Thanks again.
spk07: Absolutely. Thanks.
spk00: Thank you. And our next question comes from Joseph Osha from JMP Securities. Please go ahead. Your line is open.
spk03: Hello there, and let me add my thanks to everyone else for such great disclosure. A couple questions. You've got a nifty chart in your industry overview showing different cathode materials, and that kind of begs the question. Obviously, you're trying to go with more of a commodity solution there, but has there been any sort of interesting learning or levers that you're finding you can pull in terms of the cathode material? And then I do have a follow-up.
spk07: Yeah, I mean, I think one of the things that we've pointed out is that our system is relatively cathode agnostic. What that means is, you know, once you have a solid-state separator that works, you can use any cathode. I would go further. I would say not only is it cathode agnostic, but you can actually, you know, with this kind of a system, you open yourself up to a broader range of cathodes than can be used in conventional cells for the simple reason that our solid-state separator provides an electrical isolation between the cathode and the anode. Now, in a normal cell, if you remember our schematics from our various presentations, You have the cathode layer, you have the polymer separator, which is porous, and the anode, like carbon or silicon layer. And remember that the whole cell is flooded with a liquid electrolyte, which is the solvent through which lithium ions move up and down. Well, that liquid is in contact with both the cathode and the anode, which means that it has to be stable at both the low voltage of the anode and the high voltage of the cathode. And it's very hard to find materials in nature that have that wide a stability window relative to voltage. So when you isolate... the cathode to just the cathode by having an electrical insulator, which is our separator, between the anode and cathode, you now no longer need to have materials that are stable to low voltage. So that actually allows you to potentially use a broader, to select from a broader universe of materials for the cathode and cathode line. So that was a long answer, but the short answer to the question is that We have a lot of patents on different types of cathodes. If you look at our patent portfolio, you'll see a ton of patents on a class of material known as the metal fluorides, which is a conversion chemistry. Those are in some ways some of the highest energy density materials. In fact, on that chart you're referring to that shows a dozen cathode materials, those are the ones on the extreme right. Yeah, yeah, I was going to say that. Yeah, we do see a need to try to commercialize that, you know, day one, because the solid state separator with the lithium metal anode gives you enough of a win to where we can focus on just getting that to market, you know, and then having the new cathodes be, you know, sort of new materials that provide further growth from there, right?
spk03: And I assume your customers don't want to mess with exotic transition metal cathodes anyway.
spk07: Well, yeah, it would complicate a little bit the electrical interfaces that I mentioned earlier. So this way it's also simpler to interface into the pack. Absolutely.
spk03: Okay. Second question, I mean, in other sort of PVD and CVD, whatever processes where you're making layers of things, you know, you add layers, things don't always go right, but in the end, rather than having material be wasted entirely, you can bin it, you know, depending on, you know, the amount of imperfections you've got. So I'm just wondering, if you're looking at your process, and I've got, you know, 36 layers or whatever, and If something goes wrong in layer 35, is there a way to bend that and still use it, or do you lose the whole thing?
spk07: That's a good idea. At this point, we're just focused on trying to get the overall production volumes up. Over time, that's certainly a great strategy to use, obviously very effectively in the world of semiconductors. If you have a a unit that doesn't meet the specs for one application, but does meet the specs for a different application, you can absolutely bin it, and instead of scrapping it, you can just use it for that lower-valued application. So those are exactly the kind of things that we plan on doing over time. I think right now we're just kind of focusing on this, you know, increasing kind of the base level of production using, you know, more sort of high-tech tools, more automation, more kind of continuous-flow tools in the process.
spk03: Okay, great. And then my last question, sorry for the multiple questions. I know you had said that all of the initial learning is around the pout cell form factor. I mean, has there been any additional thinking on whether this could work in a prismatic or a cylindrical form factor? And that's it for me. Thank you.
spk07: No, good question. So we have said that we don't expect to see this being used in cylindrical form factors. Even though our separator, as we've shown in images, is relatively flexible for a ceramic. We can actually have a sufficient, you know, bend it without damaging film. You know, we don't intend to actually wind it, you know, into a diameter, say, of a pencil or something. Both prismatic pouch and prismatic can cells, though, are very much on the radar. And at the end of the day, we will work with our automotive OEMs to pick the packaging format that best meets their application. So there's no religion on that at QuantumScape. Our value creation resides around the materials that go into the battery, into the cell. How we package it, we're going to let our OEMs have a significant role in helping guide us there.
spk03: Super. Thank you for the seminar. It's great. Absolutely.
spk00: Thank you. And this concludes the Q&A portion of our call. I'll now turn the call back to Jagdeep Singh for closing remarks.
spk07: Yeah, I mean, I just want to say thank you, everybody, for joining us on this call today, our first earnings call. And we look forward to reporting our progress to you over the rest of the year. We will plan on using the same format for our subsequent calls. We will issue a shareholder letter that highlights the progress for the quarter. We'll have a short earnings call, which will present a few results. highlights of the shoulder letter and then really spend most of the time on Q&A. Look forward to continuing to work with everybody going forward. Have a great afternoon.
spk00: Thank you for joining us today. This concludes our call. You may now disconnect.
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