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spk10: Good day and welcome to QuantumScape's first quarter 2023 earnings conference call. John Sager, QuantumScape's vice president and capital markets and FP&A, you may begin your conference.
spk08: Thank you, operator. Good afternoon and thank you to everyone for joining QuantumScape's first quarter 2023 earnings 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 statements that is posted on our website as part of our quarterly update. Forward-looking statements generally relate to future events, future technology progress, 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. There are risk factors that make those actual results with different materials from the content of our forward-looking statement for the reasons that we cite in our shareholder letter, 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 Hector. 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 Judge Dean. Thank you, John.
spk06: I'd like to begin with an update on customer prototype testing. As you may recall, last year we shipped a variety of prototype cells for testing to prospective automotive and consumer electronics customers, including 24-layer A0s to the automotive sector and zero externally applied pressure single-layer cells to the consumer electronics sector. We're happy to report today the planned testing of 24-layer A0 prototype cells at one automotive customer is now complete. And in line with what we reported in our last shareholder letter, most cells performed very well, meeting performance targets on fast charge and generally showing good cycling capacity retention and high coulombic efficiency, with capacity loss of less than 1% for 100 cycles. However, we have work to do to improve reliability as we transition from prototype to commercial product. Similarly, on the consumer electronics front, we can report that customer testing of zero externally applied pressure single layer prototype cells is also complete, with the cells generally performing very well on a broad range of electrical performance and characterization tests, including cycle life, resistance, storage life, and tests at multiple rates and temperatures. And here, too, the cells displayed less than 1% capacity loss for 100 cycles. So, as I mentioned, we have work to do on reliability. The results of these independent tests provide validation of what we've seen in our own labs. We continue to see consumer electronics as an attractive market, and our zero externally applied pressure capability gives us optionality to pursue consumer electronics alongside our automotive development efforts. as we continue to engage with some of the largest consumer electronics players in the world. On the reliability front, we've already identified and begun executing a number of initiatives to improve the quality and uniformity of our materials and processes, which we believe will lead to better reliability as we continue to get closer to a commercial product. As an example, a material used during the separator heat treatment step was identified as a source of particle contamination and we've begun the transition to a different material and are already seeing encouraging results in reducing particle counts and improving quality and consistency. Next, I'd like to give an update on our technical development. On our last earnings call, we laid out the key goals we've targeted for 2023, which are designed to facilitate our transition from technology demonstration to commercial product. One of these goals was to introduce a higher cathode loading, which contributes to better energy density. There are two main challenges with making higher loading cathodes. The first is to manufacture these cathodes with the necessary quality and consistency while maintaining the ability to deliver sufficient power. The second is to maintain performance even at the higher current densities that go along with higher cathode loading, approximately 60% higher than the previous cathodes. We're therefore excited to report that we've already made and tested two-layer unit cells with these higher-loading cathodes, and in our showroom letter, we published data showing very good cycling capacity retention at high one-seat or one-hour average charge discharge rates, consistent with the data we previously published from cells with lower-loading cathodes. In addition, we also showed data demonstrating sustained discharge rates of approximately 5C at 25 degrees Celsius and as high as 8C at 45 degrees Celsius, while still accessing approximately 50% of the battery's nominal capacity. When it comes to power performance, we believe an important benefit of our solid-state lithium metal system is the ability to deliver high rates of power even in a high-energy cell design, a combination that lends itself well to high-performance applications. Now I'd like to discuss our progress on product development. First, a bit of background on the product side. As a result of our customer engagement across the automotive and consumer electronic sectors, we believe there's a significant opportunity for a cell that combines high energy density and high power. To enable a commercial product that can serve either consumer or automotive applications on the shortest timetable, we're targeting a single-track, dual-purpose design that we believe presents an attractive value proposition for both automotive and consumer electronics applications. We now have a target for our first commercial product, a 24-nair cell with a capacity of approximately 5 amp-hours. This is in a similar capacity range as the 2170 battery used in several leading EVs. We believe this initial product design makes the most efficient use of our resources and represents the fastest path to market while delivering a product that presents a compelling combination of energy and power. Importantly, this design uses the same layer count and similar separator area as the 24-layer A0 prototype cells that we've already shipped to customers, de-risking these aspects of the product development process. This allows us to focus on integrating the key remaining functionality, including the higher loading cathode and more efficient packaging, as well as improved reliability. All key goals we set out for 2023. We also expect this first product to take advantage of our new fast separator production process. Now that we have line of sight to this first commercial product, we can begin finalizing equipment designs for upgraded higher volume production on our consolidated QS0 pre-pilot line. As a reminder, our current production plan for QS0 is based on our new disruptively faster separator production process. We currently plan for deployment of this fast process in two stages. The first stage, targeted for later this year, is designed to triple throughput using similar equipment to our existing line. The second stage targets even higher throughput to support higher volume QSO production and requires new equipment. We can now report that the installation of our first stage equipment is already underway, and we aim to complete installation, qualify the equipment, and deploy this first stage into initial production this year. We're also already operating prototype versions of our second stage equipment and are working towards final equipment specification. I'd like to close with a word about the big picture strategic outlook for the company. 2023 is about turning the corner from technology demonstration toward a commercial product. This represents a phase transition, both in the history of our company and in the nature of our development work. As always, we emphasize that continuing to improve quality, consistency, and throughput of our manufacturing processes and increasing reliability of finished cells is not a trivial task. It requires an ongoing and systematic process of identifying and addressing issues, working with material and equipment suppliers, and iterating through new processes and cell designs. Yet, facing the challenges of scaling up is also a rare privilege. Historically, many emerging battery technologies fail well before this point, often because the basic electrochemical system does not have the intrinsic capabilities necessary to meet customer requirements. Therefore, it's always motivating to see results from customer testing that validate the core capabilities of our technology. Based on results like these, we believe it's possible to produce a commercial product using our solid-state lithium metal platform that simultaneously achieves high energy density and high power capability, starting with a 24-layer, approximately 5 amp hour cell. We believe this compelling combination is made possible by the intrinsic capability of our technology. Though we have much more work to do as we progress through our roadmap, we believe the work we've done so far has established a solid foundation and that we're closer than ever to our first-generation solid-state battery product. Thank you for your support, and we look forward to reporting on our continued progress next quarter. With that, I'll hand things over to Kevin.
spk07: Thank you, Jaggi. In the first quarter, our GAAP operating expenses were $110 million. Our GAAP net loss was $105 million. Cash operating expenses, defined as operating expenses less stock-based compensation and depreciation, were $63 million. This level of spend was in line with our expectations entering the quarter. For full year 2023, we reiterate our guidance for cash operating expenses to be between $225 million and $275 million. Staff X in the first quarter was approximately $28 million. First quarter CapEx was primarily directed towards facility spend for our consolidated QS0 pre-production line. We also procure equipment for our fast separator production process and self-safety test web. For the remainder of the year, our CapEx will primarily go towards facility work and equipment for QS0. We reiterate our guidance for full year 2023 CapEx to be between $100 million and $150 million. We ended Q1 with just over $1 billion in liquidity. We continue to make progress on ongoing cost savings initiatives and resource optimization. We reiterate our cash runway is forecast to extend into the second half of 2025. Any funds raised from capital markets activity, including under the at-the-market prospective supplement filed on February 28th, would further extend this cash runway. With that, I'll pass it over to you, John.
spk08: Thanks, Kevin. We'll begin today's Q&A portion with a few questions we've received from investors or that I believe investors would be interested in. Jagdeep, there's a perception that some players in the industry are moving to larger cell formats. Why have you chosen 24 layers or 5 amp hours as the size of your first commercial cell?
spk06: Yeah, so we've seen OEM interest in both large and small cells, but what everyone is interested in is energy density. Over time, we plan to make both small and large cells, but for our first product, we want to minimize time to market. We believe our 24-layer, 5-amp hour design has the potential to deliver energy densities and power capability higher than cells used in many EVs today. So we think this design already offers a compelling value proposition. By using the same layer count and similar separator area of the A0 samples that we've already shipped, we believe we can minimize the amount of additional work required to get to market. And finally, this product also provides us the flexibility to serve the consumer electronic sector.
spk08: Great. Thanks for that helpful context. There's been a number of announcements in recent months regarding new battery technologies, including 500 watt-hour per kilogram announcements from some players, as well as sodium ion batteries. How do those announcements affect your market outlook?
spk06: So we're pleased to see industry players recognize the importance of higher energy densities and the need for new chemistries to deliver this capability. Of the two recent announcements I'm familiar with, we've yet to see any data showing performance on high-rate, long-cycle life room temperature tests. And, of course, without this data, it's very hard to evaluate any claims. Regarding sodium ion, some of the figures we've seen suggest it has a very low energy density, so it's likely unsuitable for high-value automotive applications. In addition, note that if you change the ion that's transporting charge through the cell from lithium to something else, You're changing the entire stack, including the cathode, the anode, and the electrolyte, potentially introducing unknown or unexpected materials interactions, in addition to requiring an entirely new supply chain. We don't know what the specific material supply chain is for this class of battery.
spk08: Thanks, J.D. Kevin, one question for you. Can you talk to how the company is navigating the continuing macroeconomic uncertainty and the banking system strain that we witnessed in the quarter?
spk07: Yes, happy to. Four points I'd like to make. First, I'd like to highlight the strength of our balance sheet. We ended the quarter with just over $1 billion in liquidity. We reiterated guidance in our shareholder letter that we continue to see our cash runway extending into the second half of 2025. Additionally, concurrently with the filing of our annual report at the end of February, we filed a $400 million at-the-market prospective supplement. Any proceeds from this would further extend our cash runway. Second, we remain prudent on the use of funds. We continue to make progress against a number of internal cost-saving initiatives, focusing on both OpEx and CapEx. Third, our investment policy prioritizes the preservation of principal and liquidity. We have invested our treasury funds in what we view as a conservative manner, both in terms of duration, less than 18 months' weighted average maturity, and credit quality. Greater than 75% of our portfolio is invested in U.S. government obligations and AAA-rated money market funds. Finally, regarding institutional relationships, we use multiple banks for treasuring management, and the following SVUs and solvency have added additional operating relationships as well.
spk08: Thanks, Kevin. Jagdeep, turning back to you. Can you give investors a sense of the level of quality QuantumScape needs to make the system work with higher levels of reliability?
spk06: Yeah, as we said before, we believe reliability is a function of defect density, and defect density is a function of quality and consistency, which are in turn functions of cleanliness and process control. As we move to more automated tools, we tend to see improvements in all of these fronts. To give you some context, some industries such as semiconductor and the magnetic spinning disk storage industries require very high levels of cleanliness and process control. For example, the magnetic storage industry, a very high volume industry, which ships millions of hard disk drives every year, has heads that float nanometers above the surface of the platters, which are spinning at thousands of RPM. This requires cleanliness on the order of nanometers. By contrast, we believe we require cleanliness on the order of microns, a thousand times less stringent. As we continue moving to more automated tools and continue to identify and resolve sources of defects, we believe we'll be able to further improve our reliability.
spk04: Okay. Thanks so much, guys. We're now ready to begin the live portion of today's call. Operator, please open up the line for questions.
spk10: If you would like to ask a question, please dial star followed by one on your telephone keypad. If for any reason you'd like to remove that question, please press star followed by two. Again, to ask a question, press star one. As a reminder, if you're using a speakerphone, please remember to pick up your handset before asking your question. We will pause here briefly as questions are registered. The first question is from the line of Jordan Levy with Truist. Your line is now open.
spk03: Afternoon all and congrats on the design decisions. Nice next step for you all. Maybe to start, I just wanted to see if you could help us benchmark the cell design you're targeting versus some of the cells available in the market today, maybe the 2170 or 4860 in terms of what EV battery performance metrics could theoretically look like down the line once you get things scaled up?
spk06: Yeah, absolutely. So as we mentioned in our letter, the 2170 that we're familiar with has an energy density somewhere in the low 700s in terms of one hours per liter. And we believe that even with our 24-layer design, with the same area separators or similar area separators to what we've already shipped with our A0s, we can exceed that number. I think the other thing to keep in mind is that we believe not only can we exceed those energy densities, but we believe that we can do that while maintaining high levels of power. And that combination we think is relatively unique. And so we think there's a compelling value proposition with that 24-layer cell, 5 amp hours, which really allows us to minimize the amount of additional work that would be required if we were to change the layer count or change the area dramatically or other things like that, which in turn then allows us to basically de-risk those parts of the development process and get to market as quickly as possible.
spk03: Thanks, Jack Deep. And then maybe a separate question. If you could just give us a little more detail on the process and steps for scaling up the next production phase of QS0. I think you said three times the capacity. and what remains to be done before bringing that faster process line-on-line, and then subsequently what the steps are to get to that next expansion following that.
spk06: Absolutely. Yeah, this is an important question, and it's actually an area we're pretty excited about. So as you might recall, we are already using a continuous flow process for our separate production for the films themselves. And what we've been able to do is come up with a new process that we think is disruptively better. That process can take tools that are essentially very similar to the equipment we already have that we're using today and, as we mentioned, triple the throughput. That particular – that's the first stage of this new process. That first stage, we are in the process of deploying right now. The tools are in-house. They're being configured. and we currently plan to have production off of that line starting this year. Now, the exciting thing about this new process, though, is that there is a second stage where we can take the same general principle that we're using for this process and scale it up to even higher throughputs. And now, to get those higher throughputs, there is new equipment that's required, and we're currently in the process of specifying the tools and process specs for that new equipment. That equipment we expect will be operational, in-house and operational before the end of 2025 in time for our higher volume B-sample production.
spk03: Thanks so much for taking my questions.
spk04: Absolutely. Thank you.
spk10: Thank you for your question. The next question is from the line of Winnie Dong with Deutsche Bank. Your line is now open.
spk00: Hi, thank you so much. My first question is with the 24-layer A0 prototype now complete with, you know, one auto customer, congrats on that. Like what's sort of like the next step there in terms of completing testing with the other customers before you can transition to the next phase, which is the sample? And then how far are you from completing this testing with the rest of William?
spk06: Yes. So, you know, we are pleased, as we mentioned in the letter, with the results of the testing. You know, we pointed out that the, you know, the preliminary deficiency, the capacity retention, you know, the fast charge tests, you know, all went well. Obviously, we pointed out that there's more to do on reliability. You know, no one expects a A sample prototype to be as reliable as a production, you know, series, you know, commercial shipping part. But overall, we're quite pleased with the results. From here, what we are working on is taking the key items we mentioned as our goals in our last trailer, so the higher loading cathode, the more efficient packaging of the sample, the new films coming off our higher throughput film production line, integrating all that functionality into our samples, and then obviously working on the liability. So those will be the, that new functionality will be the basis of subsequent deliveries to our customers, and we expect to be working on that through when we have the B sample. We expect to have the, as we said before, lower volume B samples off of the lower throughput production lines sometime next year in 24, and then the first B sample off of the higher throughput production lines before they're 25.
spk00: Got it. That's very helpful. And then second question is for Kevin. I was wondering if you can sort of provide additional color on the internal cost initiatives that you we're going to in terms of CAPEX and OPEX. Thank you.
spk07: Thank you, Wendy. Yeah, I would say that we've continued to make progress in the quarter, both on OPEX and CAPEX areas. Not so much progress that we would change our guidance, but it is absolutely an area where our FP&A team is actively working with our cost center owners. There's a real commitment to being prudent with the strong balance sheet that we have and that isn't lost on any of the leaders on the team.
spk00: That's helpful. Thank you so much.
spk05: Thank you.
spk10: Thank you for your question. The next question is from the line of Chris Snyder with UBS. Your line is now open.
spk02: Thank you. I appreciate all the updates this afternoon. So, again, the 24-layer 5-amp hour cell, you know, you guys said it could be used for both auto and consumer. So understand that there's, you know, better synergies with that, and it would be maybe the fastest path to market. Does this suggest that the company is no longer pursuing the plan of scaling the cell up to kind of several dozen layers, or is that still, you know, in the plans or just being kind of pushed right?
spk06: No, as we've mentioned, we over time plan to make both large and small cells. And there's nothing inherent about our technology that causes us to not be able to do that. We just think that there's a lot of value to us, to our investors, to our customers of getting a product to market as quickly as possible. And so our goal here has been to say, you know, what can we do to take what we've already shipped, which of course is the A0 sample, with 24 layers in a certain area and commercialize that. And so what this first shipment does for us is allows us to leverage the 24-layer count that we've already done, leverage the area that's similar to what we've already shipped, and focus just on the things that I mentioned earlier that are part of our 23 goals. So add to that cell. the higher loading cathode, which increases energy density, add to that cell more efficient packaging, which also increases energy density, add to that cell the new films coming off of the more scalable film production line, which increases the capacity and throughput of the production line, and then couple that with the improvements we're making on reliability. And those things combined, we believe, get us to something that looks a lot more like a commercial product, and does that in the fastest possible way. The fact that that product, given the capacity that it has and the energy density that it has, appeals to both the automotive sector and the consumer sector is, in some ways, a bonus because we can now take that same product and have a single-track, dual-purpose design. So recall that the 2170s that are used in, obviously, many of the best-selling EVs today are about... have about approximately four to five amp hours of capacity. And what we're talking about is about five amp hours of capacity. So it's in the same capacity range as today's 2170s, which obviously are high volume cells. And the energy density that we think we can get out of these 24 to five amp hour cells, we think is higher than today's 2170s. And then that's not even taking into account the fact that we think we can get power density. So when you couple all those things together, you know, our conclusion is that, you know, you have a really compelling first product that can serve multiple markets, that can be, you know, better than what is the alternatives that are available, and that can really optimize time to market without requiring additional development. We for sure plan to do larger sales over time. This is simply a question of how we can get to market as quickly as possible.
spk02: Thank you for all that call. I really appreciate it. Does the kind of the focus on the 24-layer 5-amp hour sell, does that have any impact or kind of on your existing commercial agreements with auto OEMs who are maybe, you know, kind of, I don't know if there's an expectation that these would be, you know, kind of larger sales at that, when those agreements are signed? Thank you.
spk06: Yeah, so I think, you know, we're working with all of the players that we have already got an interest with, and we're discussing with them the best bit of this design with the various programs that they have in their lineup. And, you know, again, because 5M ourselves are already used in high-volume automotive applications today, you know, we believe they're you know, there's going to be no shortage of demand for this kind of cell that offers the combination of energy density and power density in this capacity range. And then in the fullness of time, you know, we offer a broader portfolio, including both large and larger and, you know, small cells in order to address the particular design approach that PSHO-EM ends up choosing.
spk04: Thank you.
spk05: Absolutely.
spk10: Thank you for your question. The next question is from the line of Ben Calo with Baird. Your line is now open.
spk01: Hey, Chugdeep. Hey, Kevin. Thank you. Have you guys, just really, Kevin, have you done anything with ATM? I'm sorry if I missed this before.
spk07: Ben, if I'm correct, your question was regarding use of the ATM in the quarter?
spk01: Right.
spk07: No, we did not use the ATM facility in this quarter.
spk01: And then, Jody, just, and I know this is all complicated to me, at least, but the different form factors, I think this question was asked before, but how do you think about you know, going from cell to going into, um, a product and the timeline that we can see developments there. I just mean, uh, consumer electronics versus automotive going from a cell to a pack. Um, like how, well, how should we think it was a milestones?
spk06: Yeah. So I think, um, On the automotive side, there's a relatively well-made-out methodology that they use, which is you go from an A sample to a B sample and so on to higher levels of maturity. In addition to maturity level, B samples typically have higher volumes, and they use those higher volumes to make PACs. to then use those packs to make actual test cars, and then finally to qualify those vehicles, and then you have a series production release. So those are all activities that we were working on with our various OEM partners. On the consumer side, it's a simpler process because there is no pack, so to speak. The cell that you are building is going to go into a device by itself. And the nice thing about this 5-amp hour design is that corresponds to roughly 20 watt-hours, and 20 watt hours is on the higher end of what you would see even in a relatively large new model phone. So if we were to do anything that's different in terms of that design for a consumer device, it would likely be making it somewhat smaller, and of course that's always easier to make something smaller because everything gets simpler and easier. So I think those are the in terms of the process flows for how the process to market works. The advantage of consumer, of course, is that not only that a simpler process, as I just mentioned to you, there's no pack design to worry about, but the requirements at the cell level are also in some ways a lower bar. So you don't need the same rates of power, so the C rates are lower. You don't need super high power to run a phone versus a car. You also don't need the same temperature performance. Cars need to be rated down to, you know, between negative 20 and negative 30 degrees, whereas, you know, phones typically don't need to run that, operate at that lower temperature. And the cycle life is very different. You know, cars typically will need to run for, you know, hundreds of thousands of miles or, you know, 10 plus years, whereas no phone, you know, is designed for 10 years. I wish they were, but, you know, typically the phones are, you know, designed to be obsolete within a few years. So all that makes it easier for the consumer application, if you will, which is why we refer to this as a single-track, dual-purpose design. We're doing one design for this 24-air cell, 5-amp hours, but we think it applies quite well to both consumer and automotive in the sense that there are examples of leading products in both sectors that use cells with capacities in that range.
spk01: Thank you. In the past, you know, you've talked about compatibility with current manufacturing, but, you know, we continue to see more and more, you know, capacity announcement, at least, like most every day in the United States. Do you think that that scale diminishes what you can offer to the automotive industry. I mean, sell and pack, you know, whomever you want to pick, you know, over the next four or five years as you get to commercialization. Or can you just remind us why you'll still be ahead of the curve? Thank you.
spk06: Yeah, just to make sure I understand the question, then, are you asking whether the new battery production capacity...
spk01: whoever having like 35 gigawatt hours here and there and here and there i'm wondering don't get out to 2025 six seven like what your advantage is oh yeah yeah yeah absolutely no you're actually right that there's there have been a lot of announcements relative to new battery production capacity coming online for sure and that actually is a testament to the just the um
spk06: the expected demand that the automakers see for EVs in their portfolio. You know, as much as we thought that EVs have been growing at a breakneck pace, it seems like there's no end in sight. This is just kind of, you know, basically continuing. And, you know, it is a massive, massive market. You know, I don't know, 80, 100 million cars a year, kind of a scale. And to convert that whole market over to electrified powertrains, you know, will take a long time. It'll take, you know, I don't know, it might take a couple of decades to fully transition over. And so to satisfy that need, there's a need for a lot of batteries, you know, hundreds of gigawatt hours of capacity. So we don't see that demand going away. I think relative to why, you know, our product is needed, the answer is that all of that capacity, substantially all the capacity that you mentioned, is coming in the form of traditional lithium ion capacity. which means the energy densities, the power densities, the overall characteristics of those cells are very similar to what's available today. And we think that having a better cell, which is a cell that delivers better energy density, better power performance, that kind of cell will always have demand. And so what we're focused on doing really is getting this new technology to market in order to enable our customers to take advantage of those capabilities. We heard very clearly from effectively all the people we spoke to, all the customers that we have partnerships with right now, that the value proposition we offer is very compelling. Our main challenge, as you know, is simply to get this to market. And so we're focusing very heavily on trying to do everything we can to minimize time to market. And that's where locking in on this 24-layer 5-amper design we think is really a big step forward because it allows us to then have line of sight to a product, which allows us to order the tools that we need to mass produce the product, which allows us to get it to market. And of course, there will always be subsequent versions and subsequent factories that have more capacity. But all that additional capacity, all those follow-on products, all run through the first product in the first factory. So if we don't do that, none of the follow-on is going to happen, which is why we're laser focused on just getting this 24.5 amp hour cell to market out of that first factory.
spk05: Thank you. Absolutely.
spk10: Thank you for your question. The next question is from the line of Mark Delaney with Goldman Sachs. Your line is now open.
spk09: Yeah, good afternoon. Thank you very much for taking the questions. First, I was hoping to better understand the commercialization timeline, which has been a point of emphasis in the letter and your remarks today. If I heard correctly, lower volume B samples of this 24-layer 5-hour cell is next year. I think you said by the end of 2025 for the higher volume B samples, but maybe help us more importantly understand when you may be in series production with that cell.
spk06: Yeah, so it's obviously easier to be more precise about the near-term milestones, right, because it's just forecasting gets harder the further you get into the future. As I said, predictions are hard, especially about the future. So I think in the near term, you know, we have the milestones that we've laid out for this year that are from last quarter. Those include, again, as a reminder, the higher loading cap loads, the more efficient packaging, the films coming off the new, more scalable production process, and then better reliability. Those are all things that are key requirements for any commercial product, and those will also go into these initial low-volume B samples that come off the lower throughput line in 24. Having said that, we do have higher throughput tools that we – we'll be ordering that will arrive and be installed by the end of 2025. So we believe we can be making the first B samples off that higher throughput line before the end of 2025. The B samples are things that we directly control. To go from B to C, of course, now you have to get the automotive OEM involved, and the timing of the C sample is really governed by the specific vehicle program and the customer that you're working with. So that becomes a little bit less precise. But our target is to be able to ramp up that facility at the end of 25 and then be able to ship past that point.
spk09: Okay. That's very helpful. Thanks for clarifying. You also emphasized the value proposition and you think there's some good balance with this product that you've selected to commercialize initially. Could you double-click a bit on that? Maybe one on the cost side. How do you think the cost of the product would compare versus established cells that are in high volume initially, but then, of course, over time, you should be able to ramp up. But some of the benefits, right? You talked about the power. What would that mean for a consumer in terms of charge times and maybe some of the other benefits your cell could enable?
spk06: Yeah, I mean, I think the core benefits of the cell are really what we've been showing all along, right? We've shown the fact that, you know, lithium ion can be higher in density because we don't have the anode. So we don't have, in our system, as you recall, you know, we don't, not only do we not have an anode, you know, but there's really zero lithium in our cell, in our anode as manufactured. So we only manufacture a cathode and a separator and bring them together as part of the assembly process. The anode forms in situ on the first charge. That both gives us higher potential energy density, but it also gives us an opportunity to have some cost advantages because we don't need the anode material, whether it's carbon or silicon or lithium oil, and we also don't need the anode manufacturing line. You can't compare a small-scale line with a super high-volume line in terms of economies of scale and cost and so on. But I think at this stage, when we have a production line, that will allow us to have all the details we need to then design larger lines and have more throughput. I think at the end of the day, what we believe is our system has some – key advantages in terms of economics, and that's I'm referring to the not needing an anode and not having an anode manufacturing line. And we believe this industry has volumes that are so high that economies of scale can absolutely be achieved. So with a couple of those two things, we do believe that we can offer a compelling economic value proposition. The timing of that, of course, depends on the timing of the ramp.
spk07: One other thing I could add just to connect the dots with the shareholder letter is to maintain that, to capture savings there on the components that we eliminate. We, of course, have to manufacture our separator at scale and golding throughput that would fit with those targets. And that's why this disrupted, this first stage of this disrupted separator process is so exciting that equipment's being installed now. And as we work towards speccing out equipment for the second stage, so that's a development that we think is positive towards that product gross margin direction.
spk09: That's all very helpful. I was going to ask one last one. You spoke about amp hours of the cells, but as we think about overall storage capacity at the pack level, I think we need to think about how big the cells are versus 2170 and how densely they could be packaged. Maybe it's too soon to kind of have visibility into pack level density, but You alluded to perhaps being better on that metric, but if you could talk in a bit more depth on the overall density potential of your cells versus what's out there today, that'd be helpful. Thank you.
spk06: Yeah, yeah, happy to. It's a good question. So actually, there are two points I'll make real quick on that front. One is that the energy density at the cell level, right, we believe will be higher with the quantum-scale solid-state metal technology than conventional 2170 cells, but secondly, at the pack level, because the cells we're shipping will be in a prismatic format, prismatic cells pack better. If you have cylindrical cells, imagine taking a bunch of water bottles and trying to pack them densely, you will have dead space between the bottles that you cannot get rid of. No matter how densely you try to pack, there will be loss of space. I think the geometric calculations are on the order of 9% of the space is guaranteed to be lost to void space. Whereas with the prismatic cells, in a bunch of rectangular you know, blocks that you're packing, you can pack them up with zero wasted space into a pack. So, the combination of higher energy density at the cell level and more efficient packing because of the prismatic nature of the cell at the pack level actually give you, we think, a compelling value proposition on energy density.
spk04: Thank you. Absolutely.
spk10: Thank you for your question. There are currently no further questions registered, so as a reminder, it is star one on your telephone keypad.
spk04: There are no additional questions waiting at this time, so I'll pass the conference back to the management team for any closing remarks.
spk06: Okay, I'd like to thank you all for joining today's call. In particular, I'd like to thank our investors for their continued support, our customers for their ongoing commitment to bringing our technology to market, And of course, the entire QuantumScape team for the endless passion and dedication that drives our progress.
spk04: That concludes the conference call. Thank you for your participation. You may now disconnect your lines.
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