Thank you. Hi, good afternoon, everybody. My name's Dave Anderson. I head up Energy Services Research at Barclays. This is not my usual audience. I'm very well aware of that. But maybe a little bit of background of kind of why I'm here and kind of what I've been seeing in my sector. In my sector, energy services has seen a lot of transformation over the last five years, and in fact, we've seen a number of companies that have kind of transferable skill sets, I would say, or transferable equipment to go into other sectors. A good example is Baker Hughes. They have a big turbine and compression business. It goes into LNG, goes into hydrogen, carbon capture, and the like. Aspen Aerogels fits into that category in a way in which I've never seen in my sector.
About 20 years ago, we're going to get into all the details here, but about 20 years ago, for about the last 20 years, Aspen has been manufacturing aerogel products, carbon-based aerogel products, with a steady end market in refining and petrochemicals. It's been used in insulation. It's one of the best thermal products in the world. I'll use it in our NASA spacesuit as well. That business was pretty steady. I covered that back in about 10 years ago. Steady business. Everything changed about three or four years ago when aerogel products are used to solve a problem in electric vehicle batteries, thermal runaway. In fact, it's the only product right now that is used as a solution. This business has turned around very quickly. This year, between GM, Acura, and Honda, they're going to be producing over 220,000 units.
Every single one of those units is going to get Aspen Aerogels products in their electric batteries. And this is just starting. We're going to get into this in a second as well. They just received a conditional approval for a DOE loan for up to, I think, $700 million. That is a big step. This is going to massively increase this company's capacity. And this is going to be one of the very, very unique suppliers to the building out of the electric vehicle battery market in the United States. So with that intro, a little bit longer intro than I usually give, this is Ricardo Rodriguez. He is the CFO of Aspen.
So maybe before, I don't want to bury the lead, but in terms of the EV battery market, but can you just give us a little history in terms of how this all began, where the aerogel product started, and maybe some of the differentiation around that product?
Yeah, so exactly as you mentioned, right? I mean, our first foothold was in the energy industrial market, selling aerogel-based insulation into a range of petrochemical assets, right? So oil refineries, LNG facilities, multiple cryogenic process, LNG tanks, etc. And in late 2020, 2021, we were awarded by General Motors the contract to supply their Ultium battery platform with a product that started out as a very close cousin of our first energy industrial insulation product. And yeah, I mean, basically, thermal runaway, I'll step it back a little bit. You may remember those Samsung tablets that were catching on fire in planes or when people sat in them or when people compressed them in their bags. That is, in essence, thermal runaway, right? It happens for a range of reasons, from manufacturing defects, a cell being used erratically, a vehicle being in an impact, a cell being ruptured.
GM, on the Ultium platform, using these large pouch cells as the underpinning for it, knew that they were going to have to address thermal runaway. They learned the hard way with the Chevy Bolt, which prompted a $1.8 billion recall. To this day, they're paying people $6,000 to sign away their liability claims in the case that a vehicle has a high probability of going to thermal runaway. So they needed a solution for, and they were looking for a material that would isolate one cell from the other in the rare case that that cell goes into thermal runaway. This product had to be, this material had to be as thin as possible and as light as possible, taking up the least amount of space and the least amount of weight in the vehicle.
And so our team showed up with rectangles of our energy industrial insulation. And they would literally go to their hotel rooms at night and shave it down to the minimum that GM could get away with. And that's how our first EV thermal barrier prototype parts had started. That was in 2020, early 2021. To give you an idea of how this business has progressed, we did $7 million of revenues within our thermal barrier business in 2021. And this year, we'll do over $315 million supplying General Motors, Toyota as well. And then we have awards with Audi, Scania, Stellantis, Porsche, and we recently announced Mercedes to also provide them a similar solution for their cells.
This issue of thermal runaway is one that's pretty serious, especially as the OEMs come to the realization that the current chemistries that they have to work with are the ones that they'll need to work with for the next 10 years-15 years. And also, the current form factors that are out there are what they have to work with for the next 10 years-15 years. And so, yeah, I mean, in many ways, it's making our little materials company turn into an auto parts supplier very similar to some of the other names that you saw presenting here today.
What's the competing technology? What are the kind of replacements or other types of products that the OEMs can use to solve this thermal runaway problem?
I mean, it's a systems-level problem, right? And so what most folks used to do is manage the battery well within its theoretical energy storage limits. I'll give you an example, so you take a Tesla Model Y. Given the amount of energy storage material that's there, that vehicle could very well have 400 mi of range, but to play it safe, the battery is maybe used to 75%-80% of its total ability, right? So when you see that you're full of charge, you're really at about maybe 80% of charge, and when you are going to zero charge, you're probably at about 15%-20%. And so as OEMs look to provide more range, right, and make more of this energy density available, there really is no alternative, because when you start pushing the limits, your probability of having thermal runaway can increase.
And then you really need a passive layer that is there to provide protection and to isolate the cell that goes into thermal runaway. So it is a game of probabilities that you are playing if you don't have a passive solution. We are seeing, for example, General Motors benefit significantly from having a thermal isolator in between each of the cells in their use of regen. You are able to let the cells warm up much faster for longer, knowing that that heat will not spread to the cell down the road. And that's why you're seeing some of the Ultium-based EVs. Even though they have a higher energy demand, they're able to consistently give you 310 mi-320 mi of range reliably in hot and cold temperatures. And that ultimately yields to an EV that you can actually rely on the range of.
This is a naive question, but are they actually advertising that, the longer range? The GM Ultium? I'm just curious.
I mean, I think people compare the charts, but it's kind of a tech they do it in a nerdy way, not directly.
Not just a simple mi off they can't just show Teslas here and Ultium here because of.
It's not an apples-to-apples comparison because the vehicle is probably a lot heavier than the Tesla. And so you got to remember, right, it's an energy equation. So you got the energy demand of the vehicle. And that's where Tesla does a really good job. The rest of the vehicle is so much simpler and so much lighter that they're both able to give you a roughly 300-mile range vehicle, but one vehicle could be a lot heavier and larger than the other.
Interesting. Talk a little bit about the IP around this. There are other aerogel products out there. There are other manufacturers. So what's the difference between yours and the other aerogel manufacturers? And I guess 3M or some other kind of chemicals company, why aren't they in this business? What's holding them off? What's your moat, if you will?
Yeah, so I would argue that in the pure-play aerogel market, we've got a very long lead. So companies like 3M, DuPont, etc., they don't have aerogel solutions. What they instead have been selling into the space are polyurethane foams that are there for mechanical reasons inside of these battery packs. Because remember, you need to keep the battery pack tight and sealed. And then even with some heat-retardant chemicals, these foams at about 300 degrees Celsius, in essence, become fuel to the fire. And what the OEMs are asking us to isolate for are 700 degrees Celsius, 800+ degrees Celsius thermal events. And so our IP goes back not just on the formulation and the various materials themselves, but also the processes to make them. And then in 2021, we started developing a lot of IP that enabled us to turn the material into these cell-to-cell barrier parts.
That's a market that we're pretty much creating ourselves right now. Yeah, I mean, as OEMs, we've had multiple cases of OEMs try to run some sort of RFI or RFQ process after they don't like our pricing, only to then end up coming back and sourcing us.
Let's talk a little bit about manufacturing and your capacity. You've had to get pretty creative over the last couple of years in terms of, as we have this whole new market developing on thermal barriers, yet you still have this industrial energy business, which is legitimate and is kind of the core of kind of your earnings kind of over the last several years. So talk a little bit about what you've had to do manufacturing-wise, what's moving around, and then maybe we can get into kind of the next phase of the capacity.
Yeah, so going back to those early prototypes of the parts that I told you, our engineers were basically shaving in their hotel rooms to turn into EV thermal barriers. The early prototypes actually released some silica-based dust, and this dust is hydrophobic. It's pretty annoying. It's like sticky, but it leaves you with a dry feeling. So they didn't want that in their process, and so we had to invent an encapsulation method for wrapping, literally cutting rolls of insulation into small rectangles. And Neil's got some samples that we can show you and wrap them into this heat-resistant film so that the dust would all stay contained within the. Now, we had to do that without changing the mechanical properties of the parts or the thermal properties of them when it came to thermal isolation.
In order to stand up that operation, we actually have two plants in Mexico right now that are doing over 90,000 of these parts in a given day. They, in essence, take rolls from a chemical process plant that we have in Rhode Island that used to make our energy industrial products. We ship those to Mexico. In Mexico, we complete these thermal barrier parts that then get picked up by the OEMs down there.
Your question around how we manage the capacity and the supply, as GM started ramping up and our EV thermal barrier customers started consuming all of our supply, we would have basically had to constrain our energy business, which was on track to do about $120 million-$130 million of revenue in a given year, down to maybe about $30 million this year in order to completely transition into supplying the automotive OEMs. That, obviously, there's a lot of value in our energy business. We're running over 40% gross margins there. There's a lot of money on the table there that we would have left behind if we could not supply the demand. Our team has started working with an external manufacturing partner in China where over a 12-month period of time, we found a set of assets that we could make work supplying this product.
And then, right now, in 2024, the bulk of the $135 million that we'll be supplying into that market is actually coming from our external manufacturing facility. And so now, as we look at expanding our EV thermal barrier business, we have capacity right now out of our plant in Rhode Island to supply about $500 million-$600 million of revenue, which then you can add about $150 million-$200 million for our energy business. So we've got a nice, very simple little $700 million revenue potential business that's already delivering 40%+ gross margins and where we've said consistently that we want to deliver over 25% EBITDA margins reliably. And the funny thing here, and probably what you were alluding to with your question, is that we saw the EV slowdown coming or the EV penetration slowdown coming at the end of 2022.
We were on track to build this plant that is going to get funded with the DOE loan, and we decided to pause construction of that plant to right-time it. And we pulled back on our spending, changed the gearing of the company so that we could deliver this level of profitability that we are doing now at the end of 2022 and going into the beginning of 2023. And that's now enabled us to really supply GM at their pace as they work through their issues, ramping up assembly of the battery packs. And then also, it moved ahead our path to profitability to three years before what we were expecting at the end of 2021 on literally half the demand, so we feel that we're in a pretty good position today.
Looking at plant two or the plant in Georgia, that would add quite a bit of capacity, would add $1.2 billion-$1.6 billion of revenue capacity to supply the EV thermal barrier segment. And the way we think about it is we obviously want to be a manufacturing company making this stuff here in the U.S., converting it in Mexico, and supplying the world's OEMs. And when we decided to right-time the plant, we basically said, "If the U.S. government through the DOE's LPO loan program can help us solve for the cost of capital, this is great. You can build the site at 10-year Treasury rates, provide over 275 manufacturing jobs, and literally export to the world from Georgia." We've applied for our DOE loan here over two years ago. We got the conditional commitment in the middle of October.
Right now, we are sprinting to close that loan before January 20th. At the same time, given the attractiveness of the project, given that we're in a red state, we don't think that time stops in January 20th, and the DOE LPO will still continue working with us even if it doesn't get completed for January 20th. If you look at our stock and how we've traded since that announcement of the conditional commitment, it feels like we've been bundled with a bunch of companies that need these DOE loans as a lifeline, right? As I said, we only need the DOE loan to make this plant viable in the U.S. Given our team's track record of standing up additional capacity on the energy industrial side with our EMF partner, we don't think that we're cornered strategically at all.
In the rare case that we don't get this DOE loan, we can very well take the equipment from Georgia, work with our EMF partner to build a site in China or outside of China in some more neutral territory, and no matter what happens, supply this demand in 2027 without having to contribute much capital. We look at how we ramped up the EMF supply. We didn't contribute a cent of CapEx, and we got our almost $200 million of supply that we now have available, and so, yeah, we're all obviously. There's a lot of anxiety here from all the discussions this morning around what the EV market will do next year, but we continue to be optimistic. We're seeing GM and some of the other OEMs that we supply play catch-up and capture their fair share of the market.
We believe that our business is geared to just get even more profitable over time. We were cash flow neutral in Q3 and can start generating positive cash flow next year. So we're well geared for a great 2025 and to finish here 2024 on a strong note.
So what has to be done with the DOE loan? What are the different things that have to be done in order to finalize this on your side or their side?
Yeah, at this point, it's basically just documenting the loan. So if you remember our disclosure on the conditional commitment, the Georgia entity is the borrower of the loan. So the agreement between the DOE and us is actually at our Georgia entity level. It's project financing. And then we need an intercompany agreement between the parent and Georgia to enable, in essence, the flow of funds and the collateral structure of the loan. It does seem like the constraint right now within the DOE is the legal resources of the DOE themselves. They've supplemented that, in our case, with Skadden Arps, who is working pretty quickly with us. And we spent a lot of time with that team pushing the ball forward. But in essence, what's left here is just documenting the loan.
So it seems to me kind of the two things that are impacting your stock right now, I think, are the general view that EV sales in the U.S. are slowing, if not declining. And obviously, the second thing is the change in administration sort of concerns. Is this a negative for just in general new energy IRAs, lumping everything into those two things? So maybe if that's the bear case, maybe can you push back on those two elements of the bear case?
Yeah. I mean, I think there was plenty of discussion here this year around speculation of what does Elon Musk want, what will the Trump administration do. I do think that a lot of this stuff is more nuanced and it takes time. That was at least my takeaway from everything that I've heard this morning and even everything that we hear within our discussions in DC, and what the industry really needs is stability in some ways, and if you're Elon Musk right now, you sort of want the CAFE standards to stay strict. You want tailpipe emissions to stay strict. Let's remember that it took the Biden administration 12 months-18 months to alleviate these standards, right?
And during Trump's first term, there was quite a bit of litigation between California and the CARB states that, in essence, went past Trump's first term and went away when Biden took over. So the development cycle for a vehicle is five to seven years. And so if you're sitting at an OEM knowing that a president's going to be there for four years, it's pretty tough. And that's precisely why, for us, going back to the end of 2022 and the beginning of 2023, we focused on right-sizing our business so that none of our OEM customers had to hit any home runs for us to be profitable and to generate positive cash flow. So that's why we positioned the company in the way that we have it today.
I do think that the $7,500 credit for customers, and there was some discussion about that today, I mean, that one did tilt the entire EV market towards leasing in the U.S. And I don't think it was particularly helpful because as the market goes to leasing, some of the OEMs just increase the prices of the vehicles by $7,500. So I think the impact of the $7,500 credit going away will actually be more muted than what people think. And the battle to ease any fuel economy emissions and ZEV requirements will drag out for longer.
I actually do believe that if you look at just some of the nameplates that General Motors are launching, how well the Honda Prologue is doing out there right now at taking share from vehicles like the Tesla Model Y, we may see some of these EVs at the nameplate level become highlights within a relatively struggling new vehicle market next year. We are optimistic. I mean, we obviously depend on our customers' ability to sell these EVs and produce them. When we look at what's going on with some of the nameplates that we are supplying at least here today, we can't help but feel optimistic.
From your standpoint, what are some of the challenges of those OEMs building out? Maybe it's hard for you to see considering you're one of many suppliers in there. But in terms of the timing of those facilities coming up and ultimately the timing of revenue for thermal barriers, what are some of the issues that you're seeing? And do you think those could slow down potentially in coming years?
Yeah. I mean, I think we saw throughout 2022 and 2023 the struggles of these OEMs to make sales. We're seeing it right now with Northvolt. We're seeing it with ACC. In fact, if you look at some of these awards, when we were awarded the business, the OEMs were saying, "Oh, we're going to ramp up with X volumes," and some said even in 2023 and 2024, and us, with eyes wide open, we basically said, "No, your volumes are actually going to be 0.3x of what you're telling me, and you're not launching until the second half of 2025," and we planned our capital spend that way. I mean, our CapEx is down by more than 50% year-over-year relative to 2023.
And so we realized that a lot of this stuff around not just launching the production for battery packs, but also making these vehicles that have a lot of software integration that some of these automakers haven't done before, that a lot of that stuff is easier said than done. And so we've been expecting quite a bit of delays in them. And that's been assumed in our projections. We're looking at next year, if on the Q4 of 2025 run rate within our EV thermal barrier business, these other awards make up more than 25% of our revenues relative to what we're doing right now with General Motors, we'll be happy. So we've set the bar relatively low for some of these other awards.
And then again, right now, as we look at 2027 and Plant Two and expanding beyond our current capacity, customers would not be giving us new awards with start of production dates in 2027 and beyond if they didn't like our plans for having that capacity available. And so whether it's Plant Two, whether it's through a combination of EMF and our facility in Mexico, we're ready to supply this capacity and to grow no matter what.
You talk about setting the bar low. I can't help but notice you've beaten raised numbers in the last three quarters, including this last quarter where you raised EBITDA guide for 2024 by 50%. I can't remember the last time I saw a company do that to $90 million. So what's been going on this year? Are you just sandbagging me? So you beat my numbers. I know the answer is not yes to that. But what's been going on here? What's been changing? Why are things speeding up? Are things getting pulled forward? Kind of what's happening under the surface?
No, it's basically a combination of the customers ramping up ahead of our expectations, frankly, and then us continuing to tighten the screws on every element within the operations themselves beyond that baseline gearing that I mentioned to you that we did at the end of 2022 as we were planning for 2023, right? And so we, in essence, said, "Let's gear the business to deliver 35%+ gross margins, 25% + EBITDA margins without having to have our customers deliver any outsized demand gains." And as the demand has surprised us throughout this year, we've been able to not just absorb our fixed costs much better, but also there were some efficiencies on the material side as the price of some of our raw materials improved meaningfully. And we've just been letting that flow down to the bottom line, right?
That's something that will, I think, we got further optimization to do here as we plan for next year so that we even further protect our profitability even though we expect to continue growing.
A few more kind of battery questions. If anyone has any questions, please raise your hand. I'm sure we can get any questions. In the meantime, let me ask you a little bit about the battery architecture and how your revenue per unit changes. You're around $1,000 per unit right now with GM, with the Ultium. There's some other designs out there. There's sort of prismatic designs. There's the whole LFP potential, kind of a shift in there. How does the kind of varying architectures impact your revenue potential?
Yeah. So I mean, the variables that drive the different configurations of our product are the form factor of the cells within the EVs and then the chemistry of the cells. Our markets, or the market that we're focused in, is basically the world ex-China, so supplying to the Western OEMs. And when you look at that market today, basically 76% of it, and we had some slides around this during our earnings call two weeks ago, 76% of it is either pouch or prismatic. These pouches, for some of you in the room, literally look like a large Capri Sun juice box, and they have a coil of anode-cathode with lithium electrolytes in them.
That's where our content, depending on the size of the battery, ranges from $700-$1,500 per vehicle because we have literally one part in between every single cell and some end cap modules in them. If you look at just going through the OEMs and which ones went in deep on the pouch form factor and therefore would have a configuration like this one, it's obviously General Motors with Ultium, Ford with SK, and the Koreans have some pouches in their portfolio. The rest are also to the prismatic cells. The prismatic cells look like basically an aluminum VHS tape. There we have about $300 of content. We're displacing about $150-$200 worth of foam. On the pouch vehicles, we're displacing about $500 worth of pretty expensive foam as well. We're not a total ad.
We provide a level of protection that enables a bunch of benefits for the OEMs. Most of our new awards outside of General Motors, in fact, all of the European ones are prismatic. All LFP cells, going back to the chemistry, are prismatic. Now, if every vehicle in the U.S. went through an LFP chemistry, we'd be driving EVs with the range of a golf cart. General Motors actually went into this during their investor day that for the next 10years, 15+ years , they basically have nickel-based cells and LFP cells as their chemistry flavors, right? On the NMC cells, that's the only way to deliver the energy density that's needed. That's also where the risk of thermal runaway is pretty high.
On the LFP prismatic side, we also have several quotes, one actually with General Motors, to supply that because if you push an LFP cell to its limits, then the risk of thermal runaway is also pretty high. So there's no free lunch. If you want to get the maximum out of these cells, you're probably going to have a risk of thermal runaway.
So if we kind of project out and going to think about all your capacity expansion, will it all be for thermal? Will it all be domestic supply? Are you expecting to be supplying European manufacturers or even Chinese manufacturers in the future?
Mostly the Europeans, and I would not be surprised if out of that capacity in 2027 and beyond, more than half of it goes towards supplying European OEMs, right? So our awards with Audi, with Stellantis, with Porsche, these are all parts that are basically going to be picked up in Mexico and taken for assembly into the final vehicles in Europe. The Chinese are different. I do think that for our business, selling into the Chinese OEMs is almost like the OEMs making a $25,000 car. It's just there's no reward there. You put up all this capital to diminish your margins and never pay that capital back, and we just don't want to fall into that trap. I mean, and that's a key thing, right?
As we make this move from being a materials technology platform that was supplying the energy industrial business, we are now doing that very profitably. And we move to supplying the automotive industry. We don't want to fall into this trap of the auto supplier that is great at borrowing capital but not so great at paying it back. And hence, we're pretty focused on lowering our cost of capital as much as we can. Hence the DOE loan. If we don't get that, hence plan B to use as little capital as possible. But at this point, our plan is fully funded and pretty profitable and on a path to generating cash flow in the near term.
Fantastic. Any other questions before we finish up here? Oh, Dan, please. I'm sorry, we got a couple here.
What do Chinese OEMs use to protect from thermal runaway?
Yeah. So some of them actually use the foams that I mentioned. Some of them, nothing, and you see them have pretty serious fires. Every day on LinkedIn, somebody sends me a bunch of fires of EVs in China, and then there are some companies that, through some workarounds or infringement of our IP, are basically making aerogel-like products. We see those parts actually get shared to us by some of the European OEMs, and we've tested them, and they deliver about a third of the thermal isolation, and they're brittle as Sheet rock. We didn't go into this, but the key requirements that we're meeting with our thermal barrier products are obviously the thermal isolation, right, so you need to have 800 degrees Celsius on one end of the product and almost room temperature on the other side for about five minutes.
Then you also have to have fireproofing capabilities. But the critical one and the one where we got a pretty strong lead is the mechanical properties. This material needs to be almost like a foam. It needs to be compressible. It needs to be able to decompress back to its original dimensions. And that's what we've seen these Chinese copycat products not do well at all.
They're brittle.
They're brittle. Very brittle. And then, of course, I mean, if these products ever get out of China, we're going to do everything that we can to enforce our IP. And we've got a history of doing that on the energy industrial side before and winning anytime.
Just with everything that's happened post-election and IRA, oddly enough, if IRA is repealed and you've taken away the incentive to produce locally, now this is, in an odd way, incentivizing China capacity to come into the U.S. How much do you see this as a likelihood of sort of increased use of China batteries? Or is your point that it doesn't matter if it's from China, the fact of the matter is we still need nickel because of the range needs of U.S. consumers?
Yeah. So it's funny. Several months ago, a lot of people were asking us, "Well, you got to make sure that your content becomes part of the IRA credit for local production." And those credits are mostly focused on making the cells, right? So we sit outside of the cells. And so we believe that even if the market somehow changed where more Chinese cells are manufactured in the U.S., it doesn't necessarily affect us, right? Because our end customer is the OEM who is responsible for the battery pack and who in many ways is actually trying to protect for any potential defects of these cells as they're made by, you name the supplier, right? So the fact that we sit outside of the cell makes us pretty much agnostic to what happens with the IRA or whether these cells are produced here in the U.S. or somewhere else.
So I would say that we're pretty well isolated from that. The main variable is that those cells need to be produced somehow. And just given the track record of the Chinese at ramping up and making those cells, we think that that may actually be a benefit for the overall EV industry versus what we're seeing today from the likes of Northvolt and ACC.
I think we're going to finish up here. Ricardo, thank you very much.
Thanks for having us. We really appreciate it. Thank you.