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spk00: Good day and welcome to QuantumScape's fourth quarter and full year 2021 earnings call. John Sager, QuantumScape's head of investor relations, you may begin your conference.
spk07: Thanks, operator. Good afternoon and thank you to everyone for joining QuantumScape's fourth quarter and full year 2021 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 the Safe Harbor provision for forward-looking statement that is posed on our website and as part of our quarterly update. Forward-looking statements generally relate to future events or future financial or operating performance. Our expectations and beliefs regarding these matters may not materialize. Actual results and financial periods are subject to risks and uncertainties that could cause actual results to differ materially from those projected. The Safe Harbor provision identifies risk factors that may cause actual results to differ materially from the content of our forward-looking statements 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.
spk03: Thank you, John. The past quarter marked the close of our first full year as a public company and we're proud to say that it was a successful one. At the beginning of 2021, we set out four key goals for ourselves. First, build single layer cells using separators with commercially relevant thickness, a technical milestone set jointly with Volkswagen. The next two were to demonstrate that our single layer cells can be scaled up to four and then 10 layer cells without adversely impacting fundamental cycling behavior. The last goal was to secure space and begin build out of our QS0 pre-pilot production facility. Thanks to the dedicated efforts of our team, we completed all four of these goals on schedule. We achieved our final 10-layer milestone in November last year, and today we can report that additional 10-layer cells have reached 800 cycles, replicating the long-term cycling performance we first demonstrated in single-layer cells a little over a year ago. Our technical development continues to progress rapidly. Today, we're excited to announce results from our first 16-meter cells at the amp-hour scale. While we generally do not expect first prototypes to demonstrate cycling results that match more mature designs, we were pleased to note that over early cycles, the very first 16-meter cell we put on our cycle-like test showed energy retention behavior substantially similar to that of our single, four, and 10-meter cells. providing a solid basis upon which we expect to rapidly iterate and improve in the coming weeks and months. We're also excited to share new data on single layer cells. Single layer data is important because it indicates the level of performance that can be achieved in a well-designed multi-layer cell. At the single layer level, we have now shown full area cells operating with zero externally applied pressure, reaching 800 cycles under what we consider to be gold standard testing conditions. one-hour charge, room temperature, and 100% depth of discharge simultaneously. To our knowledge, this represents a word first for any lithium metal battery and allows us to not only build more efficient packs for the automotive application, but also opens up sectors like consumer electronics, which don't have the physical room for pressure application apparatus. On the customer front, we recently announced a new strategic relationship with Fluence, a global leader in stationary energy storage. We believe this demonstrates that our lithium metal technology presents a compelling value proposition in energy storage applications, which potentially represents a multi-hundred billion dollar opportunity. Over the course of 2021, we also announced two customer sampling agreements, one with a global top 10 automaker and the other with an established global luxury OEM. Including our longstanding relationship with Volkswagen, we now have agreements with customers collectively representing more than 15% of global automotive sales in 2020. We believe this continued customer interest reflects widespread demand for a better battery. To meet this demand, we are working on ramping up our production capabilities, and our key milestones for 2022 are focused on executing the most important aspects of our scale-up. Our first goal for 2022 is to demonstrate our proprietary cell format. Our ceramic solid electrolyte separator enables the use of a lithium metal anode and does so in a cell that is anode-free as manufactured. This architecture potentially unlocks a host of benefits such as improvements to energy density, charging speed, cycle life, safety, and cost.
spk02: However,
spk03: Any lithium metal cell design must be able to deliver these benefits while also accounting for the unique challenges of lithium metal, such as increased volume expansion compared to conventional lithium ion batteries. The design must also be capable of being manufactured rapidly, cost-effectively, and at scale using automated processes. This year, we plan to demonstrate our proprietary cell format in preparation for large-scale customer sampling and eventually commercial production. We look forward to sharing more details on this new format soon. Our second goal for the year is to deliver age sample prototype cells to at least one customer. We plan to utilize our proprietary cell format for the age sample, which represents a major step towards defining our commercial product. Note that since every customer has somewhat different requirements, the precise specifications of an age sample are likely to vary between customers and across various applications. These A samples will be produced on our Phase II engineering line and delivered to customers for validation and testing. The Phase II engineering line is being located at our new QS campus and represents an expansion of our original Phase I engineering line that is located in our current San Jose R&D facility. Our third goal is to increase film starts to a rate of 8,000 per week. Film starts are an important gauge of our manufacturing capacity, and thus far, one of the bottlenecks to production scale has been film supply, due to considerable lead times for much of the necessary tooling. We expect this constraint to ease this year, as production begins on our Phase II engineering line. Not only will this help serve demand from customers for A-sample cells, but it will also be an important demonstration of the scalability of our manufacturing process. Our last goal for the year is to take delivery of equipment for our QS0 line and remain on track for the start of pre-pilot production in 2023. We plan to produce candidate B samples for delivery to customers next year, and our investments this year will support the build out of QS0 and the surrounding QS campus. If we complete these four goals, 2022 will represent a significant step forward on our path to bring our solid-state lithium metal battery technology into production. I'd like to close by taking a look at the strategic picture. We believe there are four key elements to the QuantumScape investment thesis. One, battery electric vehicles will replace combustion engine vehicles. Two, the anode-free lithium metal technology we have demonstrated can enable compelling improvements over current lithium ion batteries. Three, we can scale up ourselves to many layers. And four, we can mass manufacture ourselves and achieve competitive economics. So is the transition to battery electric vehicles happening? Clearly, the answer is yes. And at this point, it appears unstoppable. Major automakers have seen double or even triple digit growth in year-over-year BEV sales. and total planned investment in BEV production over the next decade amounts to hundreds of billions of dollars. The transition now seems inevitable. Second, does our next generation technology deliver compelling benefits over current lithium ion batteries? Again, we believe the answer is a clear yes. Using our single layer platform, we've shown long cycle life under automotive development test conditions, impressive fast charging capability, and an anode-free solid state design that has the potential to provide improvements to energy density and safety while also offering the potential for cost reduction. Above all, the level of interest we've seen from customers has persuaded us that there is widespread demand for a better battery. That brings us to the third question. Can these single-layer building blocks be stacked up into a commercially relevant cell? When it comes to multilayering, we believe that our success over the past year moving from one layer to four to 10 to now 16, shows that we have, in fact, successfully been able to deliver our single-layer building blocks into multi-layer and power-scale cells. We believe delivery of our A sample later this year will check the box on this premise. That leaves the final question. Can we mass produce these multi-layer cells while also achieving competitive economics? We believe this question will be answered as we execute on our scale-up milestones. In 2022, we intend to show our production-intent cell formats and deliver A samples. In 2023, we plan to produce candidate B samples and are targeting commercialization in the 2024-2025 timeframe. As we execute on these milestones, we believe this final question will also be addressed, completing all four elements of our basic thesis. Our mission as a company is to build a better battery, to accelerate adoption of electric vehicles around the world, to help avert the worst effects of climate change, and to create extraordinary value for customers and shareholders alike. These goals are admittedly extremely ambitious. However, if we are as successful in 2022 as we were in 2021, we believe we will have demonstrated that the goals we have set for ourselves are in fact achievable. We will continue to work to turn these ambitions into reality. Kevin? Thank you, J.D.
spk08: In the fourth quarter, our operating expenses were $67 million. Excluding stock-based compensation, operating expenses were $51 million. This level of spend was in line with our expectations entering the quarter. For full year 2021, operating expenses were $215 million, including stock-based compensation and depreciation. cash operating expenses for full year 2021 were $152 million. For 2022, we expect cash operating expenses to be in the range of $225 million to $275 million as we increase cell volumes, scale our manufacturing capabilities, and hire additional headcount to support this growth. CapEx in the fourth quarter of 2021 was approximately $45 million. For full year 2021, CapEx was approximately 127 million, below the lower range of guidance of 135 million due to a shift in payment timing from Q4 2021 into 2022. The change in payment timing does not impact scale-up timelines. QS0 is currently on schedule. Our 2022 CapEx plan makes significant investments into cell development and scalable production. continuous flow processes featuring increasing levels of automation, high throughput metrology systems, and scalable digital architecture. These investments help establish the mass manufacturing blueprint for our QS1 joint venture with Volkswagen and subsequent facilities. We expect total 2022 CapEx to be in the range of $325 to $375 million. Of this total, Approximately $215 million is planned for QS0 and our expanded QS0 campus. The primary QS0 building is already in an advanced stage of construction. We'll begin construction on the additional QS0 campus space in the middle of 2022. Approximately $85 million will go toward our Phase 2 engineering line, and approximately $52 million will flow into our Phase 1 engineering line and additional projects, including our R&D center in Japan. In line with previous guidance, 2021 and 2022 represent the substantial majority of investments into our engineering and QS0 lines. In 2023, we expect capital spending related to our engineering and QS0 lines to decline significantly. We target that by the end of 2022, our engineering line will have achieved its goal of producing A samples, and we will have received the majority of equipment for QS0. tracking to our 2023 goal of cell sampling from that line for use in test cars. We expect CAPEX investment during 2022 to be nonlinear. We anticipate Q1 2022 CAPEX to be in the range of $30 million to $60 million, with higher spending coming in Q2 and Q3 as the bulk of payments for the QS0 facility and tooling occurs. We'll continue to update our CAPEX guidance throughout the year. We expect OpEx to grow steadily during 2022. In 2023, we expect OpEx to grow modestly from 2022 levels as we slow our headcount growth rate and reallocate resources from development to manufacturing. With respect to cash, we spent $89 million on operations and CapEx in the fourth quarter and $255 million in full year 2021. Based on these estimates, we expect to enter 2023 with over $800 million in liquidity. which we believe will be sufficient to fund cash OpEx through initial QS1 setup, final residual investment in QS0, and CapEx to support the initial setup of the QS1 production facilities, the joint venture for cell manufacturing, as well as the facility supply separators, which we will retain full ownership of. Our gap net loss for the quarter was $67 million, and for the year was $46 million. including the impact of $169 million in non-cash fair value adjustment of the assumed common stock warrants. Excluding this non-cash adjustment, the net loss for 2021 was approximately $215 million, in line with our expectations. In Q3-21, we completed the redemption of all outstanding warrants associated with the business combination. Consequently, there will not be any incremental fair value adjustments related to these warrants in future periods. We're excited to have accomplished all four milestones we set out to achieve in 2021, and we look forward to the ambitious tasks ahead this year. We'd like to thank our investors for supporting our mission to commercialize our solid-state lithium metal batteries and thereby accelerate the mass market adoption of electric vehicles. With that, I'll pass it over to you, John.
spk07: John? Thanks, Kevin. We'll begin today's Q&A portion with a few questions we've received from investors over the SEAT and in our IR inbox. We had a couple of questions come in around timing of production, so I'll try to summarize them here. First, can you update investors on the status of the manufacturing facilities? Specifically, where are the facilities today? Where are you going to be expanding to, and when can we expect them to be ready?
spk03: So our plan started with our Phase 1 engineering line at our R&D facility in San Jose. This facility has been used to make all the cells we have delivered to customers to date, including single, four, and 10-layer cells. We have a new phase two engineering line that is being built on our new QS campus, and this will be where we produce our A samples later this year. We plan to follow that up with candidate B samples from our QS0 pre-pilot line in 2023. The QS0 line is also located on our QS campus. And that leads to our QS1 production facility, which we are targeting to be operational in 2024, 2025 timeframe.
spk07: Okay, our second question also from . When can investors expect to see a prototype sale, and how far are you into that process?
spk03: Well, we've already sampled single, four, and ten-layer sales with our customers. The A sample prototype, which is targeted to have several dozen layers, and will be familiar to investors who follow the automotive space as a sample that demonstrates the core functionality of the sale, is targeted for this year. We will follow that up with the candidate B sample, which is generally defined as a sample made using production processes off our QS0 pre-pilot production lines targeted for 2023.
spk07: Okay, great. Some investors are concerned around IP protection, specifically the risk that somebody will reverse engineer our technology and reproduce our batteries. Could you talk a little bit about QuantumScape's approach to IP protection and how you get comfortable with the risk of patent infringement?
spk03: Sure. So we have a two-pronged IP strategy. The first prong is through our patent portfolio of over 200 patents and patent applications. We generally patent those innovations that can be discovered by a competitor by examining ourselves, for example, optically or chemically. Because these innovations can be directly observed, we're comfortable publicly disposing them via patent filings. However, the second prong is our portfolio of over 100 trade secrets, which are those innovations which cannot directly be observed in ourselves, For example, process conditions and recipes, intermediate materials such as solvents and gashes, of which no trace is left in the final product, and the like. For someone to reverse engineer our technology, they would have to go through a lengthy and expensive process of trial and error in a multidimensional parameter space to try and arrive at the correct answers. We believe this dual-track approach creates a strong moat competitors will have to work hard to overcome.
spk07: Okay, two more questions for me. First, for Kevin, you've said that we have enough cash to get into the initial setup of QS1. Given the level of spend this year, can you walk investors through the liquidity situation until you get into initial production in the 24-25 timeframe? Thank you for the question, John.
spk08: It's a good one, and I'd be happy to walk you through it. We entered 2022 with approximately $1.46 billion in liquidity. We plan to spend approximately $250 million on cash OPEX. and approximately $350 million on CapEx this year, representing a substantial investment into cell development, process development, and our mass manufacturing blueprint. This spending supports the four milestones we set out for ourselves this year and funds the majority of outstanding CapEx for our QS0 line and QS0 campus. We subsequently plan to enter 2023 with over $800 million of liquidity, sufficient funding, we believe, to achieve four things. Fund cash OpEx inclusive of modest growth after 2022 through initial QS1 setup. Pay for residual CapEx for our engineering QS0 lines and QS0 campus. Fund CapEx for the initial phase of our QS1 joint venture for cell assembly. And finally, fund CapEx for the initial phase QS1 separator facility, which we retain full ownership of.
spk07: Okay, great. My final question is for Jagdeep. You said in the letter that the 16-layer cells are on the amp-hour scale. Why is that significant, and can you contextualize that cell size versus other batteries?
spk03: Yes, amp-hours are a measure of how much charge is stored by the battery, and by amp-hour scale, we mean total capacity is over an amp-hour. To put this in context, some of today's leading EVs' battery cells, 18650 and 2170 cells, are in the range of single-digit amp-hours.
spk07: Okay, thanks so much, guys. We're now ready to begin the analyst portion of today's call. Operator, please open up the lines for questions.
spk00: Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If you would like to remove your question, please press star two. And as a reminder, it is star followed by one to ask any questions today. We have the first question.
spk10: on the phone lines from jp morgan so jose please go ahead thank you very much thank you very detailed comments and outlook uh revolving uh technology and and and financials so just a couple of um questions please David, can you comment a little bit around this A sample? What do you need to solve from a technical perspective? So technical milestones you need to deliver in the short term to deliver this A sample. Second, when you look at 2021, what do you think went better than your expectations? What do you think took a bit longer to solve versus the initial plan? Can you give us that perspective? And Kevin, can you speak a little bit around hiring? And when do you think hiring will peak from an R&D dedicated personal perspective? Thank you.
spk03: Yeah. Hi, Jose. Thanks for the question. So this is Jack Deep. I'll take the first couple and turn it over to Kevin. So the A sample in the automotive space is well understood to be a sample that demonstrates the core or essential functionality of the product. That's obviously then followed up with a B sample, and typically a B sample refers to a product that not only has the core functionality but also is made using production processes. And then finally there's a C sample typically, and the C sample means it has the core functionality, it's made using production processes, but it's actually manufactured on the actual tooling on which you're going to do the production. So for our A sample then, it needs to demonstrate the core functionality. And the core functionality, as we see and our customers see it, really has to do with the electrical performance of the cell. So that means things like the charge and discharge rates, the cycle life, and so on. So those are the things that we're focused on getting done in this A sample. Once we have that, we think that will be a powerful demonstration that we can actually not only achieve the key performance metrics of the cell, but do so in a multi-layer cell with several dozen layers, as we've said in the past. And as I said earlier, in our view, that would check the box on the question of, you know, can we take the single-layer demonstrations that we've done, that we've shown many of in the last year or so, and actually deliver those in a multi-layer cell. I think the second question you asked was about 2021, what went better, what went worse than planned. That's a good question because, of course, no plan is completely linear and monotonic. You always have things that are ups and things that are downs. I think the things that we're most happy about, of course, is the fact that we hit all of the four goals that we've laid out to the streets. We're happy to start building a track record of execution. We think that that bodes well for our ability to forecast accurately and then execute to those forecasts. You know, I think the areas that I think were frankly challenging was, you know, one is, you know, one of our key bottlenecks to making progress really is around the volume of the separators that we could produce. That production volume was dependent on certain tools. We needed, you know, bigger tools that we had ordered from our suppliers. And the lead times associated with those tools, you know, just caused us to, basically not be able to ramp up production, you know, to the extent that we would have liked. It didn't end up impacting our overall results for the year. We were able to make, as you know, you know, four layer cells and then 10 layer cells and then have those cells actually meet what we consider to be the gold standard testing conditions, which of course are, you know, one hour charge and discharge, 800 cycles, you know, room temperature of 25 degrees Celsius, 100% depth of discharge and modest pressure. You know, it's hard to meet all those conditions simultaneously, and we've set that up for ourselves as our key goal. So we feel good that despite, you know, some of those challenges in terms of getting tools and so on, we were able to make enough sales to hit our goal. So let me turn it over to Kevin for the last question.
spk08: Yeah, Jose, I believe that related to headcount growth and specifically the R&D portion of it. A few comments on both those points. 2021 with a team over 550 strong. While we haven't given specific headcount growth, you could take the ratio of our 2022 cash OpEx guidance as a ratio of our 2021 actuals and get pretty close. Most of the hiring, especially this year, has been to the R&D team as we support the second phase of our engineering line towards that 8,000 film start per week target, as well as continue that QS0 line start target next year, notably landing the majority of equipment this year. And in terms of going forward, I would expect that trend to play out even further with even higher percentages going to the R&D team. And as we mentioned in our shareholder letter, we'll look for specific opportunities to shift development resources towards the R&D team as development is increasingly behind us and the scale-up risk is the dominant focus for the team.
spk05: Thank you very much. Sure thing.
spk00: Thank you. We now have our next question from Chris Schneider of UBS. So, Chris, your line is open. Please go ahead when you're ready.
spk04: Thank you. So, my first question is on scale within the manufacturing process. Can you talk about, you know, the benefits of scale? And in that same vein, at what level of output do you think the benefits of scale begin to taper off?
spk03: Yeah. So, again, a good question. So first of all, when we say scale, we are referring to two things, obviously. One is scaling up the number of layers in our cell, and two is scaling up the production capacity. So on the first point, when you start getting to a few dozen layers, you start achieving diminishing returns relative to the energy density advantage of additional layers. So the main reason why we want to increase the layer count from you know, 1 to 4 to 10, to now 16, and then to a few dozen layers, is because the more layers you have in the cell, the better the ratio of active material to inactive material, and therefore the better the packing efficiency of your cell and the energy density goes up. But that's a, you know, sort of a diminishing returns curve. As you get higher and higher, you know, you start drowning out the effects of the inactive materials to the point where adding more layers doesn't help you. Once you're a few dozen layers, you've kind of gotten most of the benefit of that aspect of scale. On the manufacturing side, clearly you need to get a certain level of scale to get the economics to be compelling. We do believe that our approach has some fundamental economic advantages. The biggest one, of course, being that we don't need an anode. We don't need the anode material. We don't need the anode manufacturing line. Our cells are literally made anode-free, and so the anode forms in situ on the first cycle from the lithium that is already in the cathode. We don't need to buy lithium foil or carbon or silicon or anything. Now, to drive those economic benefits, though, you need enough scale to where you're not operating it at a too low scale. We believe that that scale is certainly achieved in the first full-scale factory that we're planning, QS1, which is targeted to be on the order of 20 gigawatt hours. So we would expect our economics to be compelling at that scale. While we ramp up to that scale, obviously we're going to have the same kind of amortization of fixed costs over low volumes that over time becomes lower and lower until you get to the right scale. So I would say the 20 gigawatt hour scale or so is when we believe the economics are going to be at scale.
spk04: Thank you for that. And then I just kind of wanted to follow up on the storage market and applications beyond auto, which the company mentioned in the prepared remarks. You know, for auto, we've grown pretty accustomed to measuring performance, you know, largely in terms of density. Can you talk about, you know, what are the most important metrics for the storage market and even maybe consumer electronics, which you guys called out?
spk03: Yeah, I mean, so for storage, we're finding that some of the same themes that resonate with the automotive space are resonating with storage as well. In fact, our understanding is that a lot of the storage guys are actually buying automotive class batteries today. So for example, something as simple as energy density, you know, one might at first glance think that, you know, when you're talking about stationary storage, that you have unlimited space and you don't care about mass. But the reality is that when you're building, you know, 100 megawatt hour plant, you know, that's a lot of space. And so, you know, energy density, if you can have a battery that's 50% more energy dense than conventional, that does translate to real economics. Things like, you know, power. So there's a wide range of applications in the storage space. Some are, you know, things like frequency regulation. Some are things like, you know, time shifting of demand. But some of those applications, you know, do need high power. So the power capabilities are important. Obviously, economics are important. So all those metrics really we were finding do resonate with the stationary storage space, and that's why we think Fluence is so interested in partnering with us on longer-term solid-state use in stationary storage applications. Yes, to the consumer as well, and it's the same story there. I mean, you know, different applications may weight those benefits differently, but typically, you know, they all benefit from a battery that has high energy density, you know, faster charge times, safer operations, you know, better economics, longer cycle life. And, you know, energy density in particular is very important for consumer goods because, you know, if you have a consumer device like a phone or a tablet or a laptop where something like a half to two-thirds of the volume may be battery, then the designers of that device place a lot of value on a battery that has the same amount of energy in a smaller space because they can use that space for additional functionality. So I think the short answer is we're finding the same basic set of functionality, set of features that we offer, energy density, power density, safety, cycle life cost, are resonating across a broader set of applications.
spk04: Make sense. Thank you. Appreciate all that.
spk03: Absolutely.
spk00: Thank you, Chris. We now have Gabe Dowd of Cowen. So, Gabe, please go ahead when you're ready.
spk05: Thank you. Afternoon, guys. I was hoping we could maybe start with the separator and the film targets that you've laid out from a manufacturing standpoint. Maybe first, just on the update on the 10-layer cells, you mentioned there were some newer cells that were put on test that had a commercially relevant separator area of 66 by 81. So, I guess I was curious just how that's evolved from prior tests, and if the thickness is still in the tens of microns that you've mentioned previously.
spk03: Hey, Gabe. Yeah. So, the thickness, you know, as we've said before, is in the low tens of microns, and, you know, that remains the case. You know, the physical, the XY dimensions We did point out that some of those cells are in slightly different dimensions. They're all in the same general form factor that we call commercially relevant, and the differences have to do with, as we are evolving our formatting, the actual cell package and format, we're slightly tweaking the dimensions to optimize that format. But essentially, those results were in the same form factor. Was there another question you asked? And then you asked about separate... Yeah, thanks, Jagdeep.
spk05: That's helpful. Yes, yes. Yeah, I guess I was just curious if you could talk a little bit about how... Go ahead, Jagdeep.
spk03: Yeah, so that's a really important question. I'm glad you brought it up. One of the things, I mentioned earlier that scale-up involves two aspects. One is scaling up the layer count in our cells, which really is, it's primary focus is to increase energy density of the cells, because it improves the ratio of active to inactive material. And the second aspect of scale-up is producing more, you know, more cells, so we can provide more cells to customers and, you know, actually make progress towards our commercialization goals. Both of those scale-up aspects are driven really by one underlying metric, which is film starts. By film, we of course mean our solid state ceramic separator electrolyte. We call it film. It's a shorthand notation internally. If you look at film starts, that gives you a sense for what volume of films we are able to produce in manufacturing internally, which will then drive both our layer counts increases as well as our delivery of cells to customers. As we point out in the show letter, You know, we ended the year last year with something like, you know, between 1,000 and 2,000, you know, starts per week, typically. And our target for the end of the year is more like something like 8,000 starts per week. That's a substantial increase in the number of film starts per week. That increase is driven really by the arrival of new tools. As you know, we are working on, we've been working on continuous flow processing tools. So these are tools that are not batch oven-like, but are more like, you know, just a conveyor belt running these films continuously. Those new tools are really what's behind that increase in the film starts. And the increased film starts then will play a key role in allowing us to continue our progress on layer count increases as well as volume, production volume increases of the cells to provide to our customers.
spk05: Thanks, Shajit. That's helpful. And then So for QS0, the efficiency needs to increase another 4X or so, so you kind of have to get to about 32,000 a week or so for QS0 to supply the, I think it was 200,000 cells coming off of that line?
spk08: Gabe, I can take that one. The shareholder letter reference talked about greater than 4X film start per unit of CapEx, with CapEx being equipment plus tooling, and that was specific to the phase engineering line relative to the first phase engineering line. However, as you know, we do expect continued improvement going to the QS0 line, and it would be in that same zip code of improved efficiency.
spk05: Thanks, Kevin. And then just one final one for me, guys. You mentioned unique challenges of lithium metal, such as increased volume expansion. Is there anything you could talk to in terms of maybe a percentage expansion on the cells after a certain number of cycles? And has it been an issue? And where do you have to get to if it has been an issue?
spk03: Yeah, so to clarify, when we say expansion, this is not a cumulative expansion that happens over the life of the cell. This is just an expansion and contraction that happens in every cycle. And, of course, the reason behind it is relatively intuitively clear. You know, if you start out with a cell that has no anode, It's anode less than manufactured, right? This is what gives us the benefits of energy density as well as, you know, better economics. But when you charge up the cell, of course lithium has to move from the cathode to the anode, and that anode then forms in situ. It becomes a layer of pure metallic lithium. That metallic lithium layer has to occupy space. Lithium obviously is not, you know, infinitely dense, so it takes up space. And so the whole cell expands by a little bit, right? So each layer, probably expands a few tens of microns on every cycle, and then it shrinks back down to the original size when the lithium goes back into the cathode. And you have that constant expansion and shrinkage of the cell as you cycle. So what we're referring to in terms of the packaging is that that's sort of a unique aspect of the behavior of a lithium metal cell. So if you want to derive the benefits of lithium metal anodes, which obviously are significant, you have to have a cell level design that can accommodate that expansion. The expansion is probably on the order of 15 to 20%, roughly speaking, per cycle, but you need a design that at the cell package level can handle that. Now, we have some really interesting news to announce in the coming weeks and months, so I don't want to steal the thunder on that announcement, but I will say that we're planning on sharing more with our investors on the design of a new package format that can accomplish this, along with accomplish some other goals that we have in terms of overall packaging efficiency. And the other point I'll say is that the traditional, there are basically three main types of packages that are out there today in the battery space. There's obviously cylindrical cells, like the ones You know, used, you know, once the Panasonic ships, for example, the 18650 and 2170. There's prismatic canned cells. These are rectangular metallic cans, typically aluminum cans. And the third format is pouched cells. So these are like, it's a soft material, typically some kind of, you know, a metallized polymer material that's used to encase the cells. And that's a soft kind of packaging. So what we're talking about doing here is, is a new type of package. It's a fourth type of package. And we'll share a lot more about that in the coming weeks and months. But our team's pretty excited about it because we think it uniquely enables lithium metal architecture. And then the only other thing I'll say is that over time, one of the things that we think will make this even easier is, of course, the fact that we've demonstrated that our chemistry, can work with very low pressure. And that just makes your whole packaging and module design and automotive pack level engineering simpler. So all that, we'll share more about in the coming weeks and months.
spk05: Awesome. Very interesting. Thanks, Idit.
spk03: Thanks, Gabe. Always a pleasure.
spk00: Thank you. We now have a question from
spk06: george dean akaras from beard so george please go ahead hey guys uh thank you for taking my question appreciate it uh so so maybe to start off with uh just with qs0 if that's okay just i can understand and please correct me here if i'm wrong because i'm just going back to old notes uh i think the original expectation um was around 75 million in spending for qs0 but if i But I'm understanding it correctly here. It sounds like it's $215 million. Is that inaccurate in terms of my assumption? Maybe it includes the campus. I'm just trying to see if there's been inflation in some of the tools that you have to order or if I'm just miscalculating something.
spk08: Yeah, George, if you can help me with the source of the $75 million. What we did say was in the context of the follow-on, about half of the capital. towards QS zero, and if you look at where we've come out on that, and if you look at the equipment and facility cost for the line itself, we've been roughly in line with our original expectations. If your question is alluding to kind of where the spend is in 22, relative to expectations and where that amount may have gone up, the other part of your question is correct, that QS zero wasn't in the original plan. We had a unique opportunity to lease the adjacent building, to the first building that we've occupied. And what that does is that provides close proximity for the R&D and the manufacturing teams and fosters collaboration between the departments and the functions. It gives us a long-term Bay Area campus, adds additional square footage to the QS zero line to support its execution and add future optionality, extra R&D square footage to support near-term and long-term development. That would be one of the areas where there was additional spend not contemplated in that timeframe.
spk06: That might just have been an old note of mine.
spk08: I'm trying to think internally, but what I can say is that $75 million was never the target number.
spk06: It might have been just one of my old notes, but it's fair to say that this is a reflection of this increased spending this year of just enhancing the opportunity, not necessarily, you know, of any inflation that you've seen or any cost adjustments based on just the catalog getting more expensive.
spk09: Correct. For the QS0 equipment and facility, that part was roughly in line with our original expectations.
spk06: Okay. And then if you could just help me understand the math, you know, you talked about film starts this year, getting those to 8,000. Is there a way to understand exactly how that translates into separators and then cells? I'm just trying to figure out what that means in terms of the eventual production ramp.
spk03: Yeah, I can take that one. So we use starts as a metric because that's a relatively objective, clean metric. The separators that come out of the process are going to be a function of both the number of starts and, of course, the yield of the process. And the yield is a constantly moving target. We're obviously constantly optimizing it and improving that fraction. So the number of outs will change over the year, but the number of starts is a little more objective and concrete, so we use that as a metric that we track. But basically, this target number of starts is designed to be sufficient for us to meet the goals that we've made out for the year, which of course is, you know, a delivery sample sells to customers, and make enough cells to keep us on track relative to the QS0 and subsequent B sample engineering work as well.
spk02: Thank you, guys. Thank you, George. Appreciate it.
spk00: Thank you. We now have another question on the line from David Bell of Wolf Research. So, David, please go ahead. I've opened your line.
spk01: Hey, guys. This is David Bell. I'm for Rod Lash. Congrats on the year. I just wanted to jump into a couple questions on the separator manufacturing. Could you walk us through the key differences between the Phase I and Phase II engineering line? And will Phase II incorporate the continuous drying process and how similar is that process to what will be used in QS0?
spk08: Yeah, there might be two areas to compare. One is the size of the continuous flow equipment. As you know, we have installed a continuous kiln into our Phase I engineering line. The one that we'll be installing into the Phase II is larger. And the other dimension, as I was alluding to, it'll feature higher levels of automation. So those two metrics, thematically, we need to keep playing out, not only in this process area, but in other process areas as we make progress on process development from our initial phase to subsequent engineering phase to QS0 and then ultimately to QS1.
spk01: Okay, thank you. And when it comes to an earlier question, which was asked related to long lead time for equipment, is there still more development work that needs to be done on the QS0 continuous drying process equipment before it's ordered?
spk03: I think the question is, has the QS0 long lead time equipment for Yeah, for the separator being ordered.
spk09: That long lead time equipment has already been ordered.
spk01: Okay, thank you. And then I just had a quick follow-up on this. Go ahead, Doug.
spk03: Go ahead, please.
spk01: Okay, so I just had a quick question. So you've to date had the four collaboration agreements. Could you walk us through a little bit as to what needs to happen within those agreements in order to convert them to supply contracts?
spk03: Yeah, so it's actually pretty straightforward. We basically are planning on providing those customers with a series of successive generations of sales. So we'll start out with you know, cells in a certain maturity. They'll test those, validate those. If all goes well, we'll then ship them the next generation of cells and so on. And typically speaking, it's when you get to, you know, pass the B sample that you end up with actual supply contracts being negotiated. The B sample really is when there's confidence on the part of the OEMs that not only does the functionality work, but that the processes that are being used are, in fact, the same ones that will be used in production. And then it's simply a matter of acquiring the tooling that will actually produce those high volume cells. And typically, you know, we're going to want comfort from the OEM that they're actually going to, that they're committed before we start, you know, ordering super expensive, you know, large tools for production. for mass production of the cells. Now in the case of Volkswagen, obviously we already have a partnership in place. There is a JV that's already in place that's focused on mass production. That JV actually is QS1. It's planned for a couple of phases, the first phase being a one gigawatt hour phase, the second phase being a 20 gigawatt hour phase. So these are fairly high volumes for battery production, gigafactory scale production. But to answer your question briefly, as we proceed down the path and get to more mature cells and they get validated, that's when those agreements start changing over to becoming sort of a supply contract.
spk01: Thank you.
spk02: Absolutely.
spk00: Thank you. If you would like to ask any further questions today, please press star followed by one on your telephone keypads now.
spk03: Okay, we want to thank everyone for joining our 2021 earnings call, and we look forward to reporting continued progress over the coming quarters. Thank you.
spk00: Thank you. This does conclude today's call. Thank you all again for joining. You may now disconnect your line.
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