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spk06: Good day and welcome to QuantumScape's third quarter 2023 earnings conference call. John Sager, QuantumScape's Vice President of Capital Markets and FP&A, you may now begin your conference.
spk08: Thank you, Operator.
spk10: Good afternoon and thank you to everyone for joining QuantumScape's third 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 may cause actual results to differ materially 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, our CFO, Kevin Hetrick, and a new addition to our team, Dr. Siva Sivaram, President. With that, I'd like to turn the call over to Jagdeep.
spk07: Thanks, John. I'd like to begin today's call by introducing our newly hired president, Dr. Siva Sivaram. Siva holds a Ph.D. in material science and brings extensive experience in high-volume manufacturing of advanced technology products, most recently serving as president at Western Digital, a global leader in solid state and magnetic data storage. Before that, he held leadership positions at pioneering technology companies, including SanDisk, Matrix Semiconductor, and Intel. We're thrilled to have him on board. I'll start by covering our customer prototype testing. As we reported last year, we shipped our first A0 prototype cells to prospective customers in Q4 2022 with the goal of providing a proof-of-concept demonstration of a 24-layer, anode-free, solid-state lithium metal battery cell. We can now share that our top-performing A0 prototype cell in our automotive OEM's battery testing labs achieved over 1,000 full-cycle equivalents with over 95% discharge energy retention using customer-specified test conditions of CO3 charge and CO2 discharge with our standard temperature and pressure conditions and 100% depth of discharge. I'd like to point out that this is the best-performing cell, and we have work to do on aspects such as reliability. Nonetheless, this is an exceptional result. We're not aware of any automotive format lithium metal battery that has shown such high discharge energy retention over a comparable cycle count at room temperature and modest pressure, regardless of sea rate. We believe that no competing electrolyte, solid or liquid, has demonstrated sufficient stability with lithium metal to achieve this, and that this result sets a new high watermark for lithium metal battery performance. This result is especially meaningful because the A0 prototype has the same number of layers as our production intent cell and uses our proprietary cell format. Together with the higher loading cathode results reported in our Q1 2023 shareholder letter, we've now separately demonstrated three key aspects of our production intent cell design, 24 nares, higher cathode loading, and our new cell format. When these aspects are combined, along with improvements to packaging efficiency and manufacturing process controls and automation for improved reliability, It forms the core of our first commercial product, QSE5. The cover photo of this quarter's shared letter shows a mock-up of our QSE5 cell format. It's important to keep in mind that since QSE5 will have higher loading cathodes and more efficient packaging than our A0 prototype cell, it will sustain higher current densities and be built with tighter margins, resulting in more stress on the cell. We must also continue to work on producing these cells in large volumes with high quality and reliability. These factors present significant challenges. Nevertheless, we believe this remarkable result makes clear that our technology can achieve disruptive performance at commercial intent layer counts, further increasing our confidence in the transformative potential of our technology and product roadmap. Next, a word about our customer engagements. Right now, our primary focus is on QSE5 development with the goal of enabling superior performance on a range of potential automotive applications across motorsport, passenger, and commercial vehicles, including motorcycles, cars, trucks, and SUVs. As we reported last quarter, we're collaborating closely with a prospective launch customer in the automotive sector for QSE5. While the scale of this initial application is by design small, it represents an important vehicle proof of concept that we believe has high visibility and the potential to lead to other programs in the future. We're pleased with the progress the joint teams have made so far on module and pack integration and system design, though significant work remains. For example, we continue to refine and finalize the design parameters of QSC5, which will determine the specific thermal and mechanical behavior of the cell. Beyond automotive, we remain engaged with prospective customers in the consumer electronics sector, and in Q3, we entered into a technology evaluation agreement with a leading global consumer electronics player. We believe the ability of our solid-state platform to maintain good cycling performance with zero externally applied pressure meets a key design requirement for these applications. The single-layer sister cells that we first reported on in our Q3 2022 shareholder letter have now achieved between 1,500 and 2,000 cycles to approximately 80 percent discharge energy retention with zero externally applied pressure. Next, an update on our product development. Our planned first commercial product is QSE5, which uses the proprietary format first demonstrated in A0 prototypes last year. This innovative format is a hybrid of conventional pouch and prismatic cell designs to address the uniaxial expansion of lithium metal as it plates and strips during charging and discharging. We call this novel format flex frame. A key technical goal for the year is to improve cell packaging efficiency relative to the A0 prototype cells we shipped to prospective customers in 2022. This involves reducing the space taken up by the inactive material and flex frame package, as well as increasing the amount of active material in the cell. which we expect will enable the final commercial design to reach our energy density targets. When comparing the A0 prototype to our current B0 design, the B0s are designed to pack the same number of layers with more energy per layer into a slimmer cell package. We plan to provide a detailed look at the innovative flex flame architecture in an upcoming webinar. Now, let me hand it over to Siva for an update on our manufacturing scale.
spk04: Thanks, Jaydeep. I'll begin with an update on our Raptor process. As a reminder, Raptor is designed to deliver up to three times Rasmus' throughput using similar equipment to our last generation process while applying less energy per separator. In Q3, we began process qualification of Raptor equipment on schedule. Process qualification involves producing films, gathering data, characterize their quality and consistency and using that feedback to refine our process specs. We are pleased with the early return from the qualification testing. And while there is work remaining to dial in this process, we continue to target deployment of Raptor by the end of the year. We also continue to make progress on our next generation COBRA process, which is planned to support higher volume B sample production from our consolidated QS0 pre-pilot line. Along with separated heat treatment equipment, in Q3, we took delivery, installed, and commissioned key pieces of equipment related to process automation, such as unit cell assembly equipment. More automation not only increases our cell production capacity, but also reduces manual handling, which is a common source of run-to-run variation and tends to adversely impact reliability. We plan to continue process development and automation deployment to enable higher quality, consistency, and throughput as we build out our manufacturing capability. Overall, we are pleased with our manufacturing scale of progress, but more work remains, including continuing to drive our defect reduction and quality improvement initiatives, integrating advanced metrology and data collection and developing additional process automation. With that, let me turn things over to Kevin for an update on our financial outlook.
spk02: Thanks, Eva. Third quarter 2023 capital expenditures were 18 million. GAAP operating expenses were 121 million. Cash operating expenses, defined as operating expenses less stock-based compensation and depreciation, were 64 million. For the full year 2023, we maintain our guidance on cash operating expenses of $225 million to $275 million and revise our CapEx guidance to $75 million to $100 million. Approximately one-third of the reduction in expected CapEx spend is due to realized savings. Examples include successful value engineering, negotiated price reductions, and completion of certain projects under budget. The remaining approximate two-thirds is due to shifts in timing. which can be broken down into three broad categories. Certain items we deferred because we had additional schedule buffer, items where we previously forecasted more front-loaded payment timing than what will actually be required, and updates to aspects of our equipment strategy. Despite these changes in the timing of CapEx, we continue to target low-volume B-samples in 24 and higher-volume B-samples in 25. During Q3, our CapEx primarily went toward facility and equipment spend for our consolidated QS0 pre-pilot line, including for our Raptor process. For the remainder of the year, our CapEx will continue to be predominantly allocated toward QS0. During the quarter, we raised $300 million in gross proceeds from our public fall-on offering. We ended Q3 with over $1.1 billion in liquidity and continue to look for opportunities to optimize our spending and be prudent with our strong balance sheet. We now forecast that our cash runway will extend into 2026. Any additional funds raised from capital markets activity, including under our ATM prospective supplement, would further extend this cash runway. Longer term, our capital requirements will be a function of our industrialization business model, which we believe could reflect a mix of wholly owned production, joint venture, and licensing relationships. With that, I'll hand things over to Jagdeep for a final word on our strategic outlook.
spk07: Thanks, Kevin. Fundamentally, our focus for 2023 is simple. Turn the corner from prototype to product. Our key milestones are all aimed at advancing product development to build a sufficient level of technical and manufacturing maturity to enable initial production of the QSE5 cell. With just a few months remaining in the year, we're maintaining aggressive near-term schedules and remain focused on bringing a potentially disruptive first product to market in the near future. But strategically, our mission is bigger than a series of near-term objectives. We've been pursuing a next-generation electric vehicle battery for over a decade. And with a mission as challenging and important as this, long-term thinking is indispensable. Moreover, the market opportunity for our technology platform is massive, potentially in the hundreds of billions of dollars annually for decades to come. With that in mind, this year we've also taken steps to strengthen our long-term, strategic position. For example, this quarter, we seized the opportunity to fortify our balance sheet, extending our forecasted cash runway into 2026, and securing funding for pivotal development and deployment milestones, including higher volume B samples based on our COBRA separator process, which, if achieved, would have a transformative effect on our business. We've also built on our strong customer relationships and deepened our engagement with a prospective launch customer for our first product. And we continue to add manufacturing experience and technical excellence to our team at every level. At the close of Q3, we feel prepared to face the inevitable and innumerable short-term challenges on the way to our goal because we've laid a strong foundation for long-term success. We look forward to reporting on challenges and the successes in the quarters to come.
spk10: Thanks, Jagdeep. 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, we'll start with you. And I wanted to ask about our newly hired president, Dr. Siva Sivaram. Could you tell me a little bit about your expectations for him in his new role and why you felt somebody with his background and experience was a good fit for us at this stage of our development?
spk07: Sure. So we're thrilled to have Siva join the team. We've said that our main goal for the year was to turn the corner from prototype to product. In support of that, we've been working on the scale-up of the manufacturing processes, equipment, and automation, associated with higher volume, higher quality production. A key part of this is, of course, having the expertise needed to do this. We wanted to bolster our senior management team with someone who brought not only super high-volume production experience, but experience in sophisticated manufacturing processes, such as those found in the semiconductor or magnetic storage industries. But we don't think we could have found a better fit than with Siva, who, as president at Western Digital, ran one of the world's largest data storage companies, with $18 billion in revenue in 2022, and something like a 40% share of the hard drive market. The company shipped literally millions of units per year, and these units involved highly advanced manufacturing processes and supply chains. For example, as you might know, modern disk drives have magnetic heads that float on the order of five nanometers above the surface of a platter that's spinning at several thousand RPM, and do this repeatedly and with very high reliability. He was also a pioneer with multi-layer semiconductor technology, which now routinely achieves over 200 layers. We think all of his experience will be invaluable as we scale up our equipment and increase our quality and reliability.
spk10: Okay, and now a question for Siva. Siva, now that you've been with QuantumScape for a couple of months, I wanted to get your initial impressions as well as your assessment. Why do you think QuantumScape's technology is scalable, and what needs to be done to make that happen?
spk04: Thanks, John. It's been a very active and involved app development. Even before I came to the company, I spent a lot of time developing an understanding of the electrochemistry, the material science, the thermodynamics of QuantumScape's technology. But now that I'm here, what has impressed me first and foremost is the quality and commitment of the people. The depth of expertise and experience that's here within QuantumScape. I see the rigor that We have in development and the collection and management of data. It gives me confidence in the company's core competencies. It's very interesting to note the similarities to my prior semiconductor and magnetic storage experience, whether it is in hard drive assembly, semiconductor backend, or battery manufacturing. As we scale to higher volumes, the key to scaling is defect reduction, process control, and a high level of automation. I've also seen that the ecosystem at QuantumScape is very well developed, providing the incoming materials, equipment, setting up a very robust supply chain. And the depth of interaction with top-tier customers. They have studied feedback. This sets the tone for continuous improvement as we ramp. Overall, the company and the technology are well-voiced for scaling.
spk10: Great. Thanks so much, Siddharth. Kevin. Turning to you, a question submitted by one of our investors. Can you provide some additional context on the $300 million follow-on offering closed in August? How does this fit into your long-term approach to capital management?
spk02: Thank you, John, for the question on behalf of the investor. In the first half of this year, we hit several product and manufacturing milestones on the path to commercialization. We believe that the time was right for a follow-on equity offering based on the product manufacturing and customer momentum of the company. On the product development front, recall that in our Q2 shareholder letter, we shared higher cathode performance, higher cathode loading performance data, and shipped unit cells with these cathodes to multiple partners. On the manufacturing front, in Q2, we completed site acceptance for our Raptor equipment, tracking to our year-end goal to deploy the fast separator process. And on the customer front, we had announced that we engaged with a prospective launch customer in the automotive space to bring QSE5 to market. So we felt like we were on strong footing on a number of fronts and wanted to ensure that our capital runway would extend into 2026, which funds the build-out of our QS0 Cobra line and production of our higher-volume B samples targeted at the end of 2025. Okay, great.
spk10: Thanks, Kevin, so much for that insight. Jagdeep, with approximately two months left in the year, Can you summarize for investors how we're tracking against our 2023 goals that we laid out for investors in February? Specifically, what work remains to be done?
spk07: Sure, John. So at the beginning of the year, we laid out four key goals for the year that we thought were critical to helping turn the corner from prototype to production. The first was to increase the loading of the cathode from approximately 3 million amp hours per centimeter squared to approximately 5 million amp hours per centimeter squared to store more energy in the cell. We reported on the Q2 call that we achieved this higher-loading cathode and, in fact, shift unit cell prototypes with this new cathode to customers. The second key goal was to improve the efficiency of packaging. And on this front, our new FlexFrame package incorporates a number of improvements from narrower edge margins to thinner contractors and thinner adhesive layers. The other two goals were production-related and having to do with our Raptor process and reliability. and I'll turn it over to Siva to talk about those.
spk04: Thanks, Devik. The third goal was to install and deploy our new Raptor process. We have installed and qualified the Raptor equipment. We are starting to produce high-quality films and are optimizing the process to meet our performance targets. We are making good progress towards Raptor deployment by the end of the year. And finally, on reliability, we have undertaken and completed over a dozen initiatives to reduce defectivity and are now focused on process enhancements that we believe will take our reliability up to a new level. Of course, reliability is never done. It requires an ongoing effort to weed out and eliminate potential failure modes, especially as we introduce new, improved, or scaled-up processes.
spk10: 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.
spk06: Thank you. If you have a question, please press star 1 on your telephone keypad. If you wish to withdraw your question, simply press star 1 again. One moment, please, for your first question. Your first question comes from the line of Douglas Jutton with Evercore ISI. Your line is open.
spk12: Hi, Jay, Keith, and Kevin. Welcome, Subha. Appreciate the nice update here. Can I just quickly ask for a little more detail on the B sample timeline, specifically if you can confirm when the timeline for production with Raptor looks to be right now? You know, previously, I believe you said about 18 months after the A sample, which would imply the B sample timing around mid-24. This release only quotes calendar year 2024. So is there anything else you can tell us on the timing for those first B0 samples, given that it seems the Raptor certification and testing process is coming along well?
spk07: Yeah, as I mentioned, we're pleased with the way the Raptor qualification process is going. The equipment's been installed, and we're qualifying the process as we speak for deployment later this year. And we do believe we're still targeting 2024 for the low-volume B samples. When we provided the 18-month guidance, that, of course, was a general approximate guidance. But I think the targets that we're still tracking to are in 24 is when we hope to have, when we are targeting to have the first low-volume B0 samples. Subsequently to that, we expect to have higher-volume B samples using a new COBRA process before the end of 2025. So those are the two key milestones for us coming up next year and the year after, using the Raptor process to introduce low-volume B samples in 24 and the COBRA process, which is even faster, as you know, to introduce the higher volume B samples in 2025.
spk12: Okay, okay, that's helpful. And then just a quick one on Toyota's solid state news over the last couple days. You know, the company's claiming a doubling of EV range with their solution. There's no, you know, quote, unquote, new tech here, right? They're simply adding in significantly more kilowatt hours due to the smaller space required in a solid state design to achieve that stated range. Is that your understanding? Thanks, Dean.
spk07: Yeah. So, first of all, I want to say that we're genuinely pleased to see a company like Toyota endorsing solid-state batteries as the future of EVs. We obviously agree we've been on solid-state for a long time. Having said that, Toyota has announced that it's using a sulfide-based approach, which does come with some challenges. We've done a lot of work on sulfides ourselves here. If you look at our patent portfolio, a number of the patents are in the sulfide space. And one of the key challenges with sulfide-based approaches is no cycle life that results from poor electrochemical stability, and the propensity to form lithium metal dendrites. Now, if the dendrite problem isn't addressed, then there are sort of two basic options. One is to revert back to a carbon or silicon-based host material as opposed to lithium metal, but then that results in reduced energy density and power density relative to a lithium metal anode. And the other option is to run under what we consider to be compromised test conditions, i.e., elevated temperatures, or very high pressures, or low rates of charge and discharge, or a short cycle life. So all of those approaches we think make the approach unsuitable for commercial vehicles. We're not aware of data from anyone that demonstrates that these fundamental challenges of lithium metal dendrite formation in sulfide-based systems has been addressed at room temperature and modest pressures. But if data exists, we welcome seeing it. And, of course, the data we shared today, if you look at the first chart in our shareholder letter, that shows data from our A0 24-layer prototype cells, which, of course, we shipped in 2022, that achieves 1,000 cycles with a remarkable 95% capacity retention, which, as we mentioned in the call, we believe is a high watermark for cycle life in an automotive format solid-state lithium metal battery. We think the data is fairly clear on the capabilities of this approach.
spk06: Your next question comes from the line of Wenny Dong with Deutsche Bank. Your line is open.
spk05: Hi. Thanks so much for answering your questions. I was wondering if you can elaborate on the challenges being written about in the shareholder letter more specifically on combining the high cathode loading with more efficient packaging and then in the new QSC5 format. Essentially, what are the hurdles that, you know, need to be overcome for this combination to be successful?
spk07: Yeah, it's a good question. So, as we point out in the letter, If you look at the differences between the A0 we shipped last year and the QSC5 that we intend to ship next year, there's a few key areas that account for the biggest differences. One is the layer count. I'm sorry, the layer count is, in fact, the same. The QSC5 will be a 24-layer cell, and the A0s that we shipped last year were also 24-layer cells. So we've shown we can do that. The second thing that the QSC-5 needs to have is a higher loading cathode, so specifically a roughly 5 milliamp hour per centimeter squared loading cathode. The A0s we shipped had a 3 milliamp hour cathode, and we showed earlier this year results from 5 milliamp hour cathodes. I think it was on the Q2 call, and we've since shipped those cells with those higher loading cathodes to customers. The third piece is we need to put all this into our new, more efficient flex frame package. And we've mentioned on the call that we've already made progress towards that in the form of reduced margins and thinner adhesive layers and current collector layers, all those we think will play into that. So when you take those three things that we've demonstrate it separately and combine them together and then add to that the improvements that we're talking about with reliability that come from process control and more automation, you know, you end up with the core of what is QSE5. So I think the way we think about it is from a risk standpoint, we believe we've demonstrated many of the key aspects of the QSE5 cell already separately sort of if you use software technology at the unit cell level, unit test level, and now we just need to bring them together into an integrated cell. So it's more of an integration task, but now when we have QSC5, then it is a task of, you know, developing fundamentally new features.
spk09: So that's kind of where we are on QSC5.
spk05: Thank you. That's really helpful. And then on the work with the prospective launch customer for QSC-5, is there any additional color you can provide in terms of, you know, initial customer feedback or testing feedback as far, for example, you know, are the design parameters that this customer is looking at in line with less or more stringent than, you know, the gold standards that you're targeting in terms of cell performance?
spk07: Yeah, that's a great question. So one of the criteria we had to pick this initial launch customer was we wanted a customer that was excited about the QSE5 cell as is, because obviously we don't want to have to go redesign the cell or change the form factor or do anything else that could delay our time to market. So we're pleased that this particular customer is, in fact, excited about the capabilities of QSE5, And I think we reported on the QSE5 capabilities in our last earnings call where we showed a landscape map of energy versus power. And we believe that QSE5 occupies a unique space in that landscape. The other thing about this customer is that the volume needs that they have, we believe we can satisfy from our QS0 facility here in San Jose. And then the final thing about this customer is that the level of maturity they're expecting is consistent with what we believe we'll have with our higher volume B samples. So on all three of those metrics, volume levels, maturity levels, and product functionality, this is a very good match for what we have. And that's why we're excited. That's why both sides, frankly, are excited about this capability. And we look forward to continuing to work with them closely.
spk05: Thank you so much.
spk08: Absolutely.
spk06: Sorry, your next question comes from the line of Ben Callow with Baird. Your line is open.
spk00: Hey, guys. Thanks for taking my question. Seema, congrats on the new role. Just maybe, Seema, with your new role, we heard about what's similar to your previous roles. What do you think the difficulties are compared to your previous roles? And then I'll follow up.
spk04: Thanks, Ben. My prior role has always been taking advanced technologies into very high volumes. How do we integrate the technology into materials, processes, and equipment and scale it up? And I have done this several times in the past. When I came into QuantumScape, that's exactly what I am hoping to accomplish very soon. The technology is in a great place. The customer demand is there. The market is very large. It's up to us to now scale what we have into a product that we can deliver to customers, and I'm looking forward to that challenge.
spk00: Chuck, Deep, and Kevin, congrats on the raise. It was smart. As you deploy capital and you have partners come in, how does it change as we move forward and you test out stuff? Are partners more willing to invest capital so you can save the money? Or how do we think about this going forward with your capital deployment?
spk02: Ben, thank you for the question. On the $300 million gross proceed raise, we felt the timing was right based on all the momentum that we had during the year on the product with the announcement of the QSE5, the manufacturing process with the Raptor equipment in having passed that acceptance, and then all the customer traction that Jagdeep mentioned where we're working with a prospective launch customer in the automotive space for that initial high visibility, small volume launch. Moving forward, I would also highlight that in prior calls, we are open to multiple different business models in the fullness of time. We see options with holding capacity, as is the case with QS0, joint venture relationships, which you're well familiar with, as well as licensing relationships. And separately, as we've also discussed on prior calls, There's a lot of momentum behind investments in clean energy, specifically closed-loop domestic supply chains here in the United States. Those are also things which we track those opportunities to be as capital-light and efficient with the capital that we do have as possible.
spk00: Maybe the last one. I'll say again, just with everything going on, I don't know, UAW, everything in the world, Have you seen any of your partners, like, pull back from relationships and timelines or partnerships with the U.S.?
spk02: I would almost say the opposite. I think with turmoil in the world and the growing realization for the importance for the penetration of electric vehicles, direct and indirect jobs that can bring importance to the environment that we actually see more excitement around the space. And then within that, what differential battery technology like we're working with that has the prompts to completely shift out the power and energy frontier as our QSC5, while eliminating as manufactured one of the two components, it's a pretty amazing thing. And we remain excited. And as we've talked about, that's just the start of what
spk08: our technology platform promises. Thank you, guys.
spk06: Once again, ladies and gentlemen, if you have a question, it is star 1 on your telephone keypad. Your next question comes from the line of Jordan Levy with Truist Securities. Your line is open.
spk01: Hi, team. This is Henry on for Jordan. I just want to firstly touch on the cab-back savings you all have realized so far and expect to realize by the end of the year. I just want to touch on, I guess, any call you can add around some of the different puts and takes there with that material cost kind of coming down, more efficient installation through processes, and is there any learnings you guys are going to take or can take into 2024 and beyond?
spk02: It's a good question. Philosophically, we think about this in terms of big projects and small projects. We regularly get together as a team and think through things that we can do differently or smarter to save CapEx. It's the same as through OpEx. And then also, I think the whole company has rallied around the idea of spending more smartly and more effectively. And we also encourage and then publicly celebrate ideas that folks bring forward that we then put into actions. So that's, and then when you break it down, it's really that one third of savings that I referenced in my script is actually broken down into a lot of smaller projects that's definitely credit to the broader company for realizing. I think it's also important as we transition from a product development company to one of manufacturing that that has to be in our very DNA.
spk01: Awesome. That's great to hear. And then just a quick follow up on some of the recent graphite export news out of China. I'm just wondering if you guys are seeing at all any boost in interest in your technology with some of these geopolitical risks around battery materials kind of starting to play out a little bit. And do you think this will have a pretty large effect or pretty minimal in the long term kind of demand for solid state versus some of the other factors like higher energy density and the performance enhancements?
spk02: Henry, terrific question. From an industry point of view, our design eliminates the graphite anode material from the cell, which this has two advantages. As you point out, it eliminates a supply chain bottleneck and associated risks of securing supply in a crowded market. And second, as you also allude to, in eliminating the anode host material, we realize benefits in terms of energy density and charge time. Of course, to do this,
spk08: you will need a highly stable solid-state separator, which is our core IP. Thank you, guys.
spk06: Your next question comes from the line of Chris Snyder with UBS. Your line is open.
spk11: Thank you. I wanted to ask on the A0 24-layer prototype cell. It's specifically that first chart in the shareholder letter, which shows The test results from a customer battery lab, you know, clearly really strong results there. But the letter does note that this was the best performing cell. So maybe could you just frame this a little bit more for us, whether it's, you know, kind of was this one cell out of how many? Anything around just the delta between, you know, this particular cell and the rest? Was it a big outlier? You know, are they all generally different? Similar. Anybody just kind of frame that more? Thank you.
spk07: Sure. Happy to do that. First of all, as we've said many times on earnings calls this year, we have worked into our reliability. So, you know, that's a key area that we're focused on to make the cells more and more reliable so every cell works as well as the best cell. Having said that, though, with the caveat about reliability, the capacity retention curve that you're seeing here is actually very similar to what we see for most of the cells that we've shipped. In other words, the slope of this curve is really very similar across the cells. And what this cell shows is that when we make the cells with a sufficiently low level of defectivity, we end up with a really, as you point out, remarkable level of performance. 95% capacity retention at 1,000 cycles, to our knowledge, is unheard of for a lithium metal cell with a solid or liquid. And as you point out, this test was run in our automotive OEM partners' lab, right? So it's their test using their equipment, using their test protocols. And we're just really excited that this demonstrates. This is really the purpose, as you know, of the A sample is to demonstrate the capability of the core technology. And then, of course, when you get to B sample, that's when you have to get to things like, you know, implementing that sample or that capability with production processes. And that's when the reliability and so on become more important factors. So, the short answer to your question is the capacity retention curve that we're showing here is very similar to what we see across the board. We do have work to do on reliability to make sure every cell goes the distance. But in terms of the overall behavior, we're really excited by this result. It shows the inherent capability, in our view, of what a lithium metal zero anode design is capable of.
spk11: Yeah, I'm happy to hear that and really appreciate all that color. You know, maybe for my second question, you know, I want to ask on the consumer electronics, you know, You know, at QuantumScape, historically, you guys have been focused more on the auto market. You know, this year you've talked more about, you know, consumer electronics opportunities. The letter talked about a technology evaluation agreement with a leading electronics player. So I guess my question is, you know, do you think the company's first commercial product that generates revenue is more likely to be an auto or consumer electronics?
spk07: Thank you. Yeah, thanks for the question and the opportunity to clarify this. First of all, I want to be crystal clear. Our focus has been and continues to be and remains automotive. That is our primary focus. That is the space within which this initial launch customer that we've been talking about is in. And those are the partnerships that we are working very closely with. We talk about consumer, however, because we believe what we have is a technology platform. We're getting a lot of interest from a lot of different sectors. And, you know, we believe it behooves us almost only to our investors to explore all those options, keep them, you know, in the running. But, you know, we don't in any way intend to let that distract us from our primary focus, which is, of course, automotive. There's several reasons for this. One, of course, is the fact that, you know, if you get too defocused, then you can end up in a situation where you do nothing well. You've got to do one thing and do it really well. But the other is that sector, we think, is by far the largest sector in terms of size and growth potential. The way I would summarize it is that our focus remains unchanged on the automotive space as our primary market. However, we've said before that we have a, I think we called it a single track, dual purpose design. What we mean by that is the same product in this form factor we think has relevance to not only automotive, but also consumer. And so by continuing on that single track, we can serve both purposes up to a point at which point we'll have to, you know, obviously, if we're doing an actual consumer product, we'll have to make some modifications. But for the time being, we see no distraction, and we continue to focus on automotive while working with some of the consumer partners as well.
spk08: Thank you, John. Deep appreciate that. Of course.
spk06: Your next question comes from the line of Gabe Dowd with TD Cowan. Your line is open.
spk03: Hey, Jackie, Kevin, and team, thanks for taking my questions. We're hoping we can maybe just go back to that first chart that Chris noted in the shareholder letter. I guess I'd just be curious as to why the prospective launch customer ran the test at a C, C over 3, C over 2 charge discharge. Just kind of curious why it wouldn't run like a 1C.
spk07: Yeah, so it's a good question. Obviously, they ran it at C over 3, C over 2 because that's the test that they wanted to run. You know, we, as you know, for many of our tests, we report 1C, 1C. We do that for two reasons. One is 1C, 1C is even more aggressive because, you know, it charges and discharges the entire battery in an hour. So it's going to be hard to discharge an actual battery in a car in an hour. You'd have to really run down, you know, 300 miles of charge or more in one hour. which is hard to do. And in terms of charging up the battery, one-hour charge is typically considered to be a supercharged level of charging. And most automotive OEMs, most EVs are not charged on a supercharger for every single charge. We do it that way because, A, we think our technology is capable of it, and, B, it allows us to collect data much more quickly so we can have a faster cycle time, which, of course, as you know, is key to learning and improving and continuing to execute. Having said that, from a customer standpoint, CO3 may, in fact, be more typical of what a typical OEM sees for a charge rate. It's a three-hour charge. So if you're plugging in your car into your garage overnight, it might even be longer than that. I can't speak for the customer, but apparently that's what they've standardized on. along with a CO2 discharge. So what we're doing here, again, is simply reporting data that was provided to us by this automotive OEM customer. They get to decide the test conditions under which they run, and that's why we reported this. What we think is notable is just the capacity retention that we see here with a 24-layer cell is really remarkable. And we mention this because You know, as you know, when we went public a few years ago, one of the questions some people had was, great, you guys have shown some fantastic data at a single-layer cell level. Can you replicate this in multi-layer cells? And what this data demonstrates to us is that not only can we do this in multi-layer cells, in this case, 24-layer cells, but that 24-layer cell is, of course, the same layer count that we're targeting for our first commercial product, QSC5, And at that 24-day cell level, we're seeing what we believe is industry-leading performance in terms of capacity retention compared to any other lithium metal cell that we've seen. So we think it's an important data point, and we thought it was worth sharing with investors, especially because it was generated, you know, in a customer's lab by the customer using their own test protocols and their own test conditions.
spk03: It definitely makes sense. Thanks, Jackie, for all the clarification and color. And I guess just a quick follow-up. You noted the layer count and obviously a goal this year is just a higher cathode loading. Just curious, I think last quarter you guys showed a higher cathode loading cell that was maybe a couple layers. So I was curious if there's any update around that performance and cycle life and capacity retention. And I guess when could we expect to see some data with the two combined, meaning higher layer count with the higher cathode loading? Thanks, guys.
spk07: Yeah, that's a great question, and that's exactly the task that we're currently focused on, is to take this 24-layer cell that we shipped last year, the data from which we were showing in this letter, add to it the higher loading cathode, add to it the more efficient packaging, as I mentioned, the thinner adhesive layers, narrow margins at the edges, thinner contractors, add to it some improvements we're making to reliability, and then that becomes our QSE5. So, the answer to the question of when we expect to have that is next year sometime in 2024. And I can say that, you know, in general, the testing results from the higher loading cathodes are similar to what we've seen before, which is basically we have worked to do our reliability, but the overall behavior outside of that in terms of capacity retention and fast charge is quite good. In fact, I think we published fast charge results in the last early letters, so the web data is there for you to look at. But the basic idea is in 2024, we plan to basically combine this 24-layer cell with the higher loading cathode, the more efficient packaging, and the improvements to reliability that we're currently putting into our process.
spk02: We did publish fast charge data in the Q2 letter. And then also, it is more capital efficient to do development work on as small of a layer count as possible. So, it's just another example of us being as effective in printing the capital as possible.
spk09: Got it. Thanks for that, Kevin. Thanks, guys. Yeah. Good question. Thanks, Gabe.
spk06: There are no further questions at this time. I will turn the call to Jagdeep for closing remarks.
spk07: Okay. With that, I'd like to thank you all for joining us. I'd also like to thank our team for their excellent work this quarter, and of course, thank our shareholders for their continuing support of our mission. I look forward to sharing more as we continue ahead.
spk06: This concludes today's conference call. Thank you for joining. You may now disconnect your line.
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