T1 Energy Inc.

Good morning and welcome to today's Freya Battery second quarter earnings conference call. My name is Candice and I will be your moderator for today's call. All lines have been placed on mute during the presentation portion of the call with an opportunity for question and answer at the end. If you would like to ask a question, please press star followed by one on your telephone keypad. I would now like to pass the conference over to our host, Jeffrey Spittel, President of Investor Relations. Please go ahead.

Good morning, good afternoon, and good evening. Welcome to Ferrera Battery's second quarter 2022 earnings conference call. With me today on the call are Tom-Einar Jensen, our Chief Executive Officer, Jan Arve Haugen, our Chief Operating Officer, and Oscar Brown, our Chief Financial Officer. During today's call, management may make forward-looking statements about our business. These forward-looking statements involve significant risks and uncertainties that could cause actual results to differ materially from expectations. Most of these factors are outside FRER's control and are difficult to predict. Additional information about risk factors that could materially affect our business are available in FRER's S-1, an annual report on Form 10-K, filed with the Securities and Exchange Commission, which are available on the investor relations sections of our website. With that, I'll turn the call over to Tom.

Thank you, Jeff. And good morning, good afternoon, good evening, everyone. A true pleasure, of course, to welcome you back to our fifth quarterly report for our second quarter earnings of 2022. Since the first quarter earnings call, the momentum around Freyr has increased significantly. And today, along myself, Jan Arve and Oscar will take you through the status and progress and outlook of the company, which continues to strengthen on an accelerating basis. So we'll take you through a broad variety of updates in the company and I'll do that as stated together with our Chief Operating Officer and our Chief Financial Officer. As stated last time, we're starting to look like a battery company and we're now increasing our ambition levels based on our demonstrated ability to deliver on commitments and the increased market demand that we're seeing manifesting itself across all market verticals. Lithium-ion batteries is a solution which increasingly can support and Accelerated Energy Transition and can provide direct or indirect support for close to 75% of all climate mitigating targets. A lot of players are entering this space but only the ones who move at pace and build at scale and pay true attention to sustainability will prevail. We are increasing our penetration across the board with customers, technology providers, investors, governments, talent, raw material providers and equipment suppliers to name but a few. We see very strong momentum to accelerate delivery of modularized and scalable solutions for clean battery solutions, while an increasing number of customers are increasing their appetite for the same. When we started FREI more than four years ago, we had a dream on what we could become, but we had not envisaged that we would be able to move as fast and as forcefully as we have. We have more than ten-folded the organization over the last 18 months and implemented what I dare say is a world-class industrialization system resonating with an increasing number of stakeholders around the world. Demand keeps increasing and our customers need both that we speed up in our delivery at the same time as we deliver the most cost-competitive solutions to reduce energy inflation which is all around us at present. We are doing all of that and in a sustainable manner and I'm very proud to say that we are largely on track even in the most challenging macroeconomic environment seen for decades. This is due to deliberately and diligently building up an organization based on the century-long experience Norway has in producing and exporting energy, energy intensive and process intensive products in both direct and indirect forms. Freyer is on track to deliver on our previous estate of ambitions by 2025 and we are doubling that ambition in the following three years and then doubling that again two years after that. Size does matter in this business and the market situation and our increasing number of customers demand it. We now have more customer dialogues ongoing than what we realistically can cover and that is a very good situation to be in. which all in all leads us to double our target capacity installed globally to 200 gigawatt hours by 2030 across multiple geographies. As in any renewable industry, analysts and consultancies are just not able to keep up with the pace of development. And this manifests itself over and over again in the battery industry. Demand forecasts are constantly changed upwards and this trend has been even more pronounced in the industry that we find ourselves in. What is very encouraging for Freyr is the massive underlying momentum that we're now seeing manifest itself in the energy storage space, which some argue could and should more than 40-fold by 2030. We don't disagree to this statement, by the way. We do, however, target all market verticals, but we could, if we wanted to, dedicate all of our focus entirely on the storage space and applications, as there is more than enough to do in this space alone for Freyer's organization for decades to come. We do however see that our industrialization partner of choice approach coupled with the cleanest battery solutions attract a lot of interest from existing as well as emerging players across all verticals and across all geographies. Our aspirations currently of 200 gigawatt hours of installed capacity by 2030 will make us a relevant player on the global arena but as these illustrations suggest if anything the risk is on the upside as long as we continue to deliver on our promises. Having a broad spectrum of customers across the market verticals that we are targeting and the industries that we're engaging ourselves in will allow ourselves to optimize our customer portfolio and therefore be value accretive to our investors in what we believe will be a massively market short environment for the coming decade. A core part of this interest is driven by our relentless focus on stating what we want to achieve and then reporting against these achievements. Today, we'll always be transparent and direct about our status and progress. And so far, we have been able to overcome a number of challenges and keep momentum. This is driven by our mantras of speed, scale, and sustainability. And to be able to report that we are on track for startup production for GigaArctic in the first half of 2024, and that we are on track to have all equipment installed in the customer qualification plant by year end, is something that I'm deeply proud of being able to reconfirm to our investors. Governments have an important role to play in this very capital-intensive industry, and we have very strong support from the Norwegian government, and we're very encouraged by the Inflation Reduction Act announced in the US, which Oscar Brown, our Group CFO, will cover a little bit later. We therefore see that we can leverage the Norwegian development even further and accelerate our plans in the US. And we very much look forward to announcing our choice of site in the US already later this year. We should be able to start up what we now label Giga-America in the 2024-2025 timeframe at an even higher capacity than the Giga-Arctic, which will deliver our current ambition of 50 gigawatt hours installed by 2025. Let me talk quickly about GigaArctic. This will be our flagship development, and it's becoming a showcase for us. And we have upsized and improved this facility several times through our excellent organization. We now believe we can build 29 gigawatt hours of LFP capacity, which is almost three times larger than what the equivalent facility Giga 1 and 2 would be, as we announced when we went public on the New York Stock Exchange This facility will be one of the most modern battery facilities in the world in stunning environments in the north of Norway inside what we believe is the best and most effective industrial park in Norway. We've already cleared ground and we are working day and night to pour concrete and establish foundational works so that we can be ready to start up this more than 120,000 square meter facility, which will be one of the most, if not the most efficient battery facility worldwide. In this context, it is extremely encouraging to see how capital effective this facility will be compared to all other facilities in Europe in operation or under construction. This very strong capital efficiency is primarily due to the highly space efficient nature of the 24M technology, as I've talked about many times, coupled with our upsized facility compared to previous and our excellent project execution centric organization leadership who have been able to optimize the capital efficiency of this facility. As the world needs to build hundreds of gigafactories over the coming decades to keep up with demand in the market segments I just alluded to, finding the most capital-efficient solutions will be key to success. And therefore, we are extremely encouraged to have this highly comforting starting point. We are very proud to be the first to take the commercially proven 24M technology to gigawatt-hour scale, and we will lead the way into next-generation lithium-ion battery solutions. On top of this, we will also be able to produce more than 200 times more batteries per employee and current conventional lithium-ion battery solutions. And we will use 100% renewable and ultra-low cost electricity to deliver on those battery production capacities. So the future for Freyr looks very strong indeed, and we have a very strong cost-competitive starting point to replicate around the world. This is then what the Norwegian government has been seeing as we have been in intense dialogue with them since we started to make ourselves known in the Norwegian scene some four years ago. And six weeks ago, the Norwegian government decided to launch their national battery strategy on-site together with Freyer in Moerana. Clearly a testament to our leading position in the Norwegian battery industry. Norway aims to become a leading nation not only in battery cell production but across the entire battery value chain and our very close relationship with the Norwegian government and all Norwegian institutions is cementing our position as the lead in Norway. This deep financial, strategic and political support unlocks additional value-creating opportunities, including the establishment of the entire value chain and battery ecosystem in Norway and the Nordics. And the Nordics is emerging as a core hub for battery production and the materials going into it. We are very grateful to the Norwegian government, who will now channel Norway's century-long experience in energy, energy-intensive and process-intensive industries, and apply this to the battery ecosystem. Let me now hand over to Oscar Brown, our Group CFO, who will bring you our perspectives on the Inflation Reduction Act in the US, which is already accelerating our activities in our plans in the US together with our excellent partners Koch Strategic Platforms. Oscar, over to you.

Thanks, Tom. And on slide 11, with just a few of the highlights noted, I can say we were quite excited to hear about the U.S. Inflation Reduction Act, which would have an extremely positive impact on Friar's ongoing efforts to establish a major manufacturing presence in the United States. As proposed, Friar would benefit directly and indirectly from the bill, and it certainly has accelerated our ongoing efforts with Koch regarding our U.S. joint venture to build what we are now calling Giga America. As Tom mentioned, we have narrowed our site selection from nearly 150 potential locations to less than five and anticipate announcing a decision in the near future. The Inflation Reduction Act would benefit Friar and Giga America in a number of ways, including a $35 per kilowatt hour tax credit for cell manufacture in the United States, a $10 tax credit on the manufacture of module impact, and a 10% tax credit related to the production of anode and cathode materials in the US. As important, the simplified ability to transfer and monetize these tax credits, including a direct pay option, is incredibly helpful to high growth companies like our own. These benefits should substantially improve the economics of U.S. gigafactories, stimulate already strong demand for energy storage system products, and battery storage development projects in the U.S. by reducing costs and facilitating U.S. supply chains, thus also reducing the industry's carbon footprint. The bill also includes a number of direct benefits for our customers as well, including an investment tax credit for standalone energy storage developments, meaning no need to tie these storage developments to specific solar or wind projects to claim the credit. For FLYER, this bill is a catalyst for our US strategy, much like the Norwegian National Battery Strategy was to us in Norway. We said last quarter that FLYER is part of the solution for energy security, energy inflation, and climate change. These initiatives by the governments of the United States and Norway will accelerate our mission. Moving now to slide 12 of the earnings deck, I will review our financial results for the second quarter and the first six months of 2022, as well as provide an update on our GigaArctic financing initiatives. For the quarter ended June 30, 2022, FDI reported net income of $4.7 million, or $0.04 per share, compared with the loss in the same period last year which predated our New York Stock Exchange listing. For the six months ended June 30th, the company reported a net loss of $30 million or $0.26 per share. The reason for the reported net income at this stage of the company's growth has to do with the warrant liability fair value adjustment of $33 million in the second quarter and $25 million in the first six months of the year. This liability moves around period to period based upon, among other things, the company's stock price at each period end, generally reporting gains when the stock declines and losses when the stock rises. More importantly for us today is our cash investment rate. We spent net cash of $36 million during the second quarter and $77 million for the first six months of 2022, ending the second quarter with $488 million of cash and equivalents and no debt. As shown on the financial update slide in the earnings deck, naturally, cash was spent on corporate overhead, operating expenses, and capital expenditures, primarily supporting the Customer Qualification Plant and GigaArctic, as well as initial spending on our U.S. Gigafactory joint venture with Coke, our proposed project in Finland, and other business development activities. As mentioned last quarter, the mix of CapEx and OpEx will skew more towards capital expenditures in the future, particularly as GigaArctic, as the project matures. With Friar's Board approving some incremental spending and commitments to continue progress on GigaArctic and maintain our scheduled start of production in the first half of 2024, we expect our expenditures to increase in the third quarter and for the second half of 2022. Additional spending beyond Q3 will be dependent on continued progress on the ongoing commercial and financing initiatives. With respect to financing, we announced in late June we had identified in excess of $1.6 billion of potential credit support for Giga-Arctic at the same time as the Norwegian government announced its national battery strategy at our construction sites in Ljubljana. Last month, we formally launched stage one of our project financing process. We've approached 14 commercial banks led by our two mandated lead arrangers, as well as four export credit agencies, including Exfin, and two multilateral development finance institutions, or MDFIs, the Nordic Investment Bank and the European Investment Bank. This first stage with these 20 institutions is a market sounding process, which both continues to educate the credit market on our story specifically and GigaArctic and requests indications of interest and feedback regarding targeted gearing, pricing of the various credit facilities, key credit ratios and the like, as well as amounts each institution could potentially commit to, all subject to due diligence and formal credit approval. We expect this feedback later this quarter, and all indications so far are very positive. In addition to the indications we've already received earlier this year from Xfin, the EIB, and the NIB, totaling up to $800 million, we've also received several favorable early indications of interest from our commercial banking partners. The next stage we'll be launching later this month, which is the formal project financing due diligence process. As many of you may appreciate, it is quite thorough and involves a large number of external consultants. Following due diligence, we are targeting formal credit approvals toward the end of this year and financial closing in the first quarter of next year. We're incredibly pleased with the ongoing support of all our financial and industrial partners, including our shareholders, and our progress on all fronts, as well as the continuous improvement in demand outlook for our products and the urgency of addressing climate change being demonstrated by business and governments around the world. With that, I'll turn it over to Jan Arbor for the operations update.

Thanks a lot, Oskar, and hello to everyone. I will now try to give you an update on the operational status in Freyr. I will cover the development of the execution of the Customer Qualification Plant or the CQP as we label it, the preparation for the final investment decision and the project execution of the GigaArctic, as well as the latest general project development for the next five Gigafactories before I finally give you an update on the supply chain status. First of all, The customer qualification plan was formally decided in July last year. Increased focus on the health and safety as construction now is moving from the manufacturing plants and into the installation phase. We can report now serious incidents. We have zero lost time incidents and the total rate of incidents are also zero. And even more important, We have very good reporting of safety observations. In total, 62 reports have been received today. As can be seen from the latest pictures from the factory, the core part of the plant, which is the dry room, is now completed as far as building and infrastructure is concerned. The air conditioning unit is now installed and tested. As per end of July, seven out of the nine production line packages had either been completed the factory acceptance test or were in the process of executing the factory acceptance test. Shipment to that plant in Moerana is now scheduled and the installation program is being detailed out. Our clear ambition is to avoid major carryover scope from the manufacturers to the installation phase. Optimizing the details can, to some degree, transfer scope into the installation program, but still under supplier supervision though. We certainly see challenges. General supply chain issues, logistics and COVID-19, as well as sourcing of semiconductors hit us too. But it's a token of appreciation to the project teams that openness and transparency, and in particular collaboration and cooperation with the key suppliers, are supporting continuous and joint problem solving and the work around planning. And I remind yourself, it's still 140 days until Christmas this year. Further on, the operational update, let me share with you the latest status of the GigaArctic project. FREI passed a very important milestone in June when our internal decision gate number three was approved by the board and we officially announced this. Imminently, the first concrete foundations were casted and our project team and the key contractors were mandated to initiate the detailed process design as well as approaching the supplier industry for tendering of all key components of the production line equipment. Freyr's project execution team is now integrating all selected suppliers in a collaboration phase to complete the front-end engineering design in order to release the technical specifications and the estimated bill of quantities for purchasing of the production line equipment. We plan to submit the first call-offs for long lead items and critical part structural steel this week. It is our main contracting strategy to develop frame agreements with key suppliers preliminary, primarily building on the competitive contracting for the CQP, where we secured options for the Gigafactory project program. However, competitive bidding will be used if the benchmarking of these options prove to be inflated. Project schedules, interfaces, lead times and integration is being planned in detail to meet the GigaArctic startup or production date in the first half of 2024. At the bottom of this slide you also will see a profile of the GigaFactory and GigaArctic has been used as a design basis for an optimized cell manufacturing plant. As we have stated before, the modularized and continuous process flow has been an important design criteria in order to support operational excellence and high safety and Bill Dunn on high yield of production. It is our clear conclusion that the 24M design can easily be replicated into other locations and support Frayer's strategic ambitions to meet the demand of batteries in other regions. Subsequently, we are currently maturing the concept design for an optimized cell manufacturing facility. that rapidly can be tailor-made for the specifics of other locations. So let me please then share with you some thoughts in this following slide. This is a swift sketch on how we see the optimized 24M production system and how it can be organized. We conclude that the two core process lines can be arranged into one dry room. This will allow for what we call a tandem production by the operators. That means that a set of standard operating procedures can cover both lines. Further on, the four lines in one building structure and another four lines in the second structure is an optimized arrangement for phase capacity build-up and production ramp-up. All production lines sectioned into a straight line labeled the I-shape is the best way to arrange the process for continuous flow, avoiding batch production to the highest extent. Uptime of the core process is of course then the key design criteria that will support the yield of the plant. Based on the overall layout, arrangements of functional design criteria The team now has built a design basis for this OPRE optimal plant that can be replicated. As can be seen on this slide, an eight-line plant will cover some 120,000 square meters. Building an optimal land plots is approximately We are now currently evaluating different sites and we have started with approximately 150 sites in 25 states. and it's narrowed down to less than five shortlisted where we are now in June and the team is now continuing the narrowing down based upon the latest input from the different shortlisted locations and we are as indicated by Tom soon to decide which one of those locations that we will go for. In Finland, we also have the MOU with the City of Vasa that provides failure with an exclusive right to a 130 hectare site for the battery cell plant. Groundwork is already ongoing and we are ready to start construction in Q4 of 2022, if that is decided. There is one more plot next two hours, which is currently reserved for other operations, but might become available in November 2022. The governmental support is of high importance to Freyr and we are well aligned with the Vasa local municipality and with the Finnish authorities. Last but not least, from an operational side, let me now give you an update on the supply chain. First, We have now secured a PPI with the Norwegian-based energy producer Statkraft for the dedicated production of guaranteed renewable energy to the giga-arctic plant and to the CTP. We can again confirm that this PPI is agreed at very competitive rates and very good conditions. The primary task today for us is to secure raw material to the CQP and at the same time build the security of supply for the commercial production in Giga-Arctic. This is all based on the 24M technology with pre-qualified suppliers. In addition, we have the strong partnership with our partner Itachi Auto Japan for both the sourcing and the logistics. Currently we have 6 out of 12 firm reservations confirmed and agreed in contract basis and related conditions. We have made the volume reservation on supplier side until 2028 based on the non-binding volume forecast from Freya. In case of major changes to the forecast each year ahead, volume reservation and of course pricing shall be negotiated for the coming year. The remaining six suppliers are in good progress. Supply teams are now meeting all the suppliers for quality control, ESG-related checking, and building the relations while sharing the strategy offering going forward with the suppliers. Increased focus on qualifying additional suppliers with the specifications of 24M is now a current dedicated team in R&D in Trondheim and in Japan is predominantly focusing on testing alternative raw materials that can supply 24M technology in addition to them that 24M pre-qualified themselves. Further on, as we have announced previously, focus on decarbonization clearly also drives towards localized raw material processing in the Nordic region in particular. where renewable energy is relatively low cost and also high security of supply. A prime project is now to develop the process plan for the LFP cathode material based on license agreement with Alice that we plan to localize in the Nordic region. Our project team is planning for an FID for the cathode plant in order to meet production volumes required for the Giga Arctic Rampart. So to sum up, Operationally, we are continuing to commit to deliver and will deliver as committed. By this, I will now hand the word over to Tom, who will share some strategy and concluding remarks before we go into the Q&A session. Over to you, Tom.

Thank you, Jan-Arve, and thank you, Oskar, for those We are moving fast forward on multiple fronts. We have secured ultra-low-cost energy, and we are advancing strongly towards a localized supply chain. Having a localised supply chain with renewable energy playing into that processing will not only both reduce costs significantly compared to others, but it will also enable us to advance faster towards our ultimate ambition of zero CO2 emissions on a lifecycle basis. Our initial ambition is to have that reduction by 80% in the very short order, and we're already well on track to achieve that through the initiatives that Jan-Arve mentioned. While this is important from a climate mitigating perspective, it is also supporting an even greener bottom line, as reaching our ambitions in the medium term could generate, as depicted by this slide, gross value of more than $150 million per year for GigaArctic alone. Freire will not survive as a company unless we are at the absolute left-hand side of the cost curve, and being the cleanest battery solutions provider globally, supports that ambition much more than most people realize. So to sum up, we are on track and we keep pushing relentlessly ahead to deliver the cleanest battery solutions to an ever-increasing customer base across all market verticals. The traction on the customer side integrated with our financing efforts enable us to move forward in our staged FID process We are emerging as an industrialization partner of choice for established players in the battery space from Asia to the US. This is true for technology providers, raw material providers, equipment providers, customers, investors, governments alike. You should expect material news from Freyr in the weeks and months to come from all of these different arrangements as we convert our initial offtake agreements to firm value accretive contracts and add technology and geographical diversification to the mix. We would not have been here without our investors. So I have to, on behalf of the board and everyone in Freyr, to thank all of you very much for your support to date. We will keep growing and the Freyr team can promise you that we will do our utmost, that the journey ahead will be a deeply rewarding one. It is obviously more pleasant to talk to you today than it was on the 11th of May and the underlying market conditions for battery players like us is increasing day by day. Our promise and delivery is based on producing the cleanest, safest and most cost competitive battery solutions in the world. We are on track to deliver on that ambition. And with that, I thank you for your attention and hand it over to Jeff to guide us through the Q&A. Jeff, over to you.

Thank you, Tom. Operator, we're ready to open up the line for questions.

Thank you. If you'd like to ask a question, please press Start followed by 1 on your telephone keypad. If for any reason you'd like to remove your question, please press Start followed by 2. Again, to ask a question, it is Start followed by 1. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question. So our first question. comes from the line of Nelly Echler of Clarkson Securities. Your line is now open. Please go ahead.

Thank you. Nelly here from Clarkson. Guys, congratulations on wrapping up the second quarter. I thought I would start with some questions regarding your expansion ambitions. So you mentioned doubling ambitions towards 2030. Do you have any Outliner, do you have any ideas around where that will be? Would it be predominantly in Norway, Scandinavia, or are you aiming more towards developing additional geofactories?

Yeah, thank you, Karsten, for that question. So we are targeting, as alluded to, 200 gigawatt hours of installed capacity by 2030, 100 gigawatt hours installed by 2028, and 50 gigawatt hours installed By 2025, needless to say, the first facility we will build is the GigaArctic facility already underway. This will be LFP production in the Nordics. Most likely, the second facility we will build will be in the U.S., which will be probably a larger facility than GigaArctic, probably also to a large extent LFP capacity for the storage markets. But we are seeing increasing interest from commercial vehicle and electric vehicle producers as well. Generally speaking, you should sort of have as a rule of some idea that the 200 gigawatt hours installed capacity by 2030 will be roughly half in Europe and half in the United States. That's at least the working hypothesis right now. And it will probably be half LFP and half higher energy density materials. This is something that is extremely dynamic and constantly sort of changing. and to sort of support that notion as mentioned previously we have an extremely flexible technology in the 20 frame platform so if capital chemistries change and the sort of main interest in capital moves from one particular solution to another we are able to adapt our production system to cater for that. Generally speaking, 50-50 U.S., Europe, and 50-50 NMC, LFP by 2030 is a rule of thumb that you can have in the back of your head. And as we're progressing towards that, we will give you more specific updates as and when we contract out the different production lines that we are developing.

Great. Thanks for that, Tom. And just to follow up on U.S. factory contracts, I saw that you outlined approximately 61 million per gigawatt hour for production in Norway. How do you see that potentially increasing with building factories in the US?

So we think that we will implement eight production lines of so-called Generation 3 equipment in the US. If all of that is LFP and it's the Generation 3 equivalent that we're having in GigaArctic, you should expect the capacity of GigaAmerica, a working title for our facility in the U.S., to be around 35 gigawatt hours. but that might sort of change a little bit but directionally I think that's what we're aiming for in Giga America the way we'll see it now but bear in mind this is reasonably early days relative to Giga Arctic so there might be some changes in that but directionally this is what we are looking at at the moment.

Great and just the last follow-up on that do you still expect or I know it's early but you still expect CapEx per gigawatt hour to be the same In the same range as what would be in the Nordics in the States, or would it be reasonable to assume an increase for the US factories?

Well, given that we will have the same number of production lines and that we have an optimized and idealized sort of solution for it, if anything, we expect the capex intensity for that facility to go down. But we will come back with updated estimates on that when we're a little bit wiser somewhat later this quarter.

All right. Okay. Thanks, Mark.

Thank you. Our next question comes from the line of Philip Koenig of Goldman Sachs. Your line is now open. Please go ahead.

Yes. Thank you very much for the presentation. My first question is also coming back to the U.S., and the potential benefits from the Inflation Act. You had a very nice slide where you pointed out the different potential incentives across the value chain. Can you maybe just point out how has that changed in terms of your strategy for the U.S.? Where do you see the largest opportunity? Does it also make a difference about thinking about your value chain or localizing more of the production in the U.S.? then my second question is also on localization but more in Europe I'm just wondering on the LFP cathode plan is there maybe a bit more detail on sort of the timeline and how would it work would you license the technology from Elise or would you build the cathode plan together with them and then potentially also offer to customers outside of yourself and lastly I just wanted to hear your thoughts around recycling I know when you When you announced the sanctioning of the first gigafactory, there was also that you saw some potential investment on the recycling side. What is your strategy there? I'd be very keen to hear your thoughts on that matter. Thank you.

Well, thank you, Goldman, for a very important question. So when it comes to the U.S. and the Inflation Reduction Act, clearly the intended package now sanctioned yesterday by Senate is very strong. and clearly increases the impetus not only for battery cell manufacturing capacity to be established in the US but for the entire value chain. So with anything this just accelerates and increases our desire to build facilities in the US including localization of upstream materials and for that matter downstream development based on a battery cell manufacturing footprint. The most capital intensive part of this value chain as you know is the battery cell manufacturing facility so therefore for us that's kind of a centerpiece if you like of our development and then we will add the upstream and downstream pieces around this Again, in a partnership-based way, focusing again on the speed, scale, and sustainability mantra, and renewable energy is going to be core for us wherever we locate ourselves in the U.S. And our site selection process that we are well advanced in, moving from more than 150 locations across 25 states to now less than five, and let's call it final contenders, all sort of show very promising features in terms of not only these more general incentives on a federal level but also state-by-state very strong sort of packages to support and accelerate the development in the U.S. So expect us to move forcefully forward together with our partner Koch Strategic Platforms who've been very active in the process of our second election today. and you should expect a lot of news on our development in the US in the weeks and months to come. When it comes to Elise and the cathode plants in Norway and or in the Nordic region, you should expect us to develop and build capacity that will at least feed Thank you very much. Thank you very much. Thank you very much. are, of course, as any other battery player, very active and preoccupied with how we engage in the recycling arena. We're talking to and investigating the best option for us in this regard. We fundamentally believe that recycling of black mass and active materials for production of future battery cells will be important, but it's probably some years into the future until we can Thank you very much. and you should be expecting us to make judgment calls on that in the not so distant future. Clearly recycling is core. The first large-scale battery recycling facility in the world has been built or is in commissioning I would say in southern parts of Norway and therefore Norway is here also at the forefront of the battery industry and we will benefit of course from a front row seat kind of observation to this But again, our choice of partner in this regard is something that we'll come back to in due course.

Thank you very much.

Thank you. Our next question comes from the line of Mandeep Mandoli of Credit Suisse. Your line is now open. Please go ahead.

Hey, thanks for taking the questions. Mahib Manlo here from Credit Suisse. First one, just on the timeline here, like on the FID, definitely saw the good news over the last month on the debt financing or at least the initial talks on it. When should we expect an update on that end? Or is the trigger basically coming from Yeah, thanks for that. Hi, it's Oscar, and I'll tackle that one.

So, as you saw in the press release, the board approved increased commitments of $70 million in the third quarter, so we could buy some long lead time items and stay on schedule for our first half of 2024 start of production for giga artifacts. So maybe I'll also give some guidance to cash uses during the quarter, though. We'll probably be about $60 to $70 million. We won't spend all of that commitment necessarily in the third quarter. And that's before changes in working capital. So really the driver of sort of the next release and next release, the way we're looking at this, is just continued progress on the commercial side, on financing, on joint ventures, and sort of all the things that Tom's been referring to. So we're continuing to be on schedule. for releasing just enough activity to stay on that schedule. And we'll make the further commitments down the road when we're sort of ready to do so.

Gotcha. That's a kind of precursor to this. That's really good. Thanks. And just on the IRA, there's a lot of good information. We appreciate that. If we can kind of talk about pricing here, I think some of your contracts, these customer arrangements, even for the Giga Arctic, are for U.S. sites. Does this $30 per kilowatt hour subsidy or production incentive, does that change these discussions with your customers in terms of like what that pricing could be for the deliveries or how do you think the $30 kind of impacts pricing going forward for you, at least for the U.S. market?

Well, so great question. And of course, this was passed in Senate yesterday, right? So still needs to pass Congress. And it's reasonably nascent, right? So it hasn't really filtered into our customer discussions in a material way yet. So what I can say, of course, is with the structure that has been envisaged, the interest in and appetite for the entire battery value chain acceleration organization in the U.S. is clearly now in a different level than what it was a couple of weeks ago. And so this will, of course, enable us to provide improved overall economics across the entire value chain in the US. So what this will clearly sort of unlock is an acceleration of the US battery industry. And having an already Structured and modularized setup for rapidly rolling out next generation world-leading battery solutions like we have now developed and are building in Norway will give us an edge with all of our customers, many of which also will require volumes to be produced in the US. So this is very good news for us. Exactly how the delineation of these incentives will be across the different stakeholders in the value chain will play itself out in different ways and forms, I'm sure. But the good news is that for a cell producer, this will allow for a massive uptick in value creation in the US and building more facilities, creating more jobs. and sort of developing more battery-driven energy transition activities in the U.S., which we, by the way, have been very clear on all along. And when the U.S. wakes up to this energy transition in a material way, which this bill clearly sort of is a testament to, a lot of momentum will happen in the U.S. And we are ready to engage and are already on the ground finalizing where we're going to build the first facilities.

I appreciate that. And just last one for me. There's some text in the bill which requires some of the batching materials for EVs at least to come from countries where U.S. has treated agreements from. How does that benefit the Norwegian factory operations? make it easier for you to kind of like ship those things over here into the U.S.?

It does, Oscar. It does. It's helpful, obviously. And I think it's helpful for all the competitiveness of all Western sort of battery manufacturers and Western-located battery manufacturing facilities, so anything OECD. So there's a whole list of items that are very favorable in this bill. We could go on and on. In addition, there's some great outcomes for our developer customers here as well. So we expect ESS demand to accelerate further based on this, given some things like the investment tax credit and other related items that just makes it easier for developers who are customers for ESS as well. So it's great across the board.

Great. Anoy, thanks a lot for taking the questions and look forward to hearing more on the U.S. factory and giga. Thank you.

Thank you. As a reminder, if you'd like to ask a question, it is start followed by one on your telephone keypad. Our final question comes from the line of Greg Lewis of BDIG. Your line is now open. Please go ahead.

Hey, thank you and good afternoon, and I guess good morning, everybody. Tom, I was just looking for a clarification around, you kind of alluded to You know, customer interest and demand largely being, you know, I don't know if you quite said sold out, but it's clearly filling up. When we think about that, is that kind of, is that just for the Arctic Gigafactory or at this point in time, we're starting to kind of fill up, I guess, in the U.S.? I wouldn't think so, but I just want to understand how those companies, discussions are progressing.

Greg, thank you for that question and good morning to you. So the way we're thinking about this is from a macro perspective, we see for the next decade a fundamental market short and we think that market short is widening. As mentioned in one of the slides, we see demand picking up quite significantly across the board for all market verticals and we think That demand increase will just keep increasing given the underlying driver of climate change needing really to sort of speed up the energy transition. At the same time we see that there's a lot of new entrants in this space claiming to be building and have plans to build bigger factories. We don't think all of these will be successful. So therefore, on a risk-adjusted basis, sort of look at supply, we see that there's a very strong market short on the horizon. Now, and it's already a market short in our dialogues with many of our customers. They are getting orders canceled or they are getting, you know, double-digit price increases twice in two months and so on. and another sort of thing we're observing is that the EV market is crowding out the EFS market. So having a tailor-made solution for EFS is actually very welcome in the market today and therefore there is a lot of interest even after our initial sort of year worth of sort of really marketing our solutions to them. So the way we're thinking about this with that backdrop Greg is we are seeking to allocate about 50% of the volume in any given facility to sort of five-year long-term contracts. And the reason why we're doing that is to ensure that we have a strong sort of bankable cash flow coming in from a creditworthy partner. and then we're reserving 50% of the remaining volume for merchant sales because we do believe that having spare capacity going into this market short environment is probably the most sensible commercial play as a battery cell producer at the same time having this ability to sufficient amounts of cash flow so that you can get favorable project financing in the making and all of that is of course intricate processes that we're in at the So, as we previously indicated, we are well north of 100 gigawatt hours in initial off-take agreements. Giga-Arctic will probably produce in the order of 100 gigawatt hours by 2030 when we sort of take ramp-up and yield and uptime, etc., into consideration. So, what that means is that we already can visualize or think about Having half of the offtake volumes that we have contracted so far dedicated to GigaArctic and the remainder in a way dedicated to the next facility. So I hope that sort of gives you a flavor of where we are thinking about this. This is obviously not something that is, you know, carved in stone to 100%. We might go a little bit higher on offtake commitments in one facility and maybe a little bit lower in another. As we're sort of progressing on our project financing efforts, by and large, I would say that we have sufficient coverage for GigaArctic and we're starting to have sufficient coverage for the next facility. So hopefully that gives you some color as to how we're thinking about this and why we are ready to come out with reasonably bold and bullish statements around Giga America at this time.

No, that was super helpful, Tom. Thank you for that. And then I did want to follow up on the, I guess they call it the Inflation Reduction Act. Clearly, that's very granular. And I get this is more of just a catch up to what's already been happening in Europe. Is there any way to kind of, I don't know, try to quantify how this levels the playing field for battery cell, Pack production in the U.S. versus Europe. I mean, it seems like based on what we're tracking, Europe has still much more attractive incentives. You know, any way to kind of say, yeah, I guess kind of how this stacks up versus what's already in various pockets of Europe?

So Greg, I think it's a little bit too early for us to sort of have a very strong view as to how much more or less or equally attractive this is relative to different incentive schemes in Europe. As you know, there is something called IPK in Europe, which is International Projects of Common European Interest, which is this broad European project. It's called an incentive program to stimulate, among other things, battery production. This is also something that Norway is going to be part of. But then, of course, you have favorable government guarantees. You have direct lending programs. You have ECAs backing up different solutions. You have grants, both from the European Union and from local governments, all within the European competitive sort of framework. So it's a little bit too early to say, you know, Whether the Inflation Reduction Act is materially better or at par with what we see in Europe in general and in Norway in particular, but what I can say is that when we actually saw the bill come out and we saw the details of it, we were very encouraged. So this is obviously the driving force behind us now accelerating our plans and efforts in the U.S. and as we move forward and we start engaging on specific programs and specific discussions then we'll be more intelligent in terms of how to inform our investors about how we view this. But clearly this is positive. Clearly this increased interest in capacity build-up in the U.S. and we will be at the forefront of that for sure.

Okay, perfect. All right, thank you for the time everybody. Have a great rest of the day. Thanks, Greg.

Thank you. As there are no additional questions waiting at this time, I'd like to hand back over to the management team for closing remarks.

All right. Thank you, Candice, and thank you, everyone, for your participation this morning and your interest in the company. We look forward to seeing everybody out on the road over the next several weeks, and we'll catch up with you soon. This will conclude the call.