Okay. Good morning, and thanks for joining us here at the CES Tech and Auto Forum. Really pleased to have the Enovix team up here. We have Ralph Schmitt, the Senior Vice President of Sales and Business Development. Next to him, we have Charlie Anderson, the Senior Vice President of IR. Enovix is, you know, a really interesting story in the battery space. We're gonna let Ralph provide some opening remarks, introduce himself, his role at the company, his background, and then, you know, move on to Q&A. Gentlemen, thanks a lot for joining us at our conference.
Thank you very much for having us as well. Yes, as Bill pointed out, I'm running sales and business development for Enovix. Been with the company for about two years. Prior to that, I've run a number of different semiconductor public companies. Primarily been driving mostly customer and product into the marketplaces in the semiconductor, other technologies, as well as the battery space now. Been really excited to be a part of this because we see a huge opportunity here with this company to sort of revolutionize and change kind of the landscape of what's happening in the battery space today.
This has been a market that's had very slow growth and changes over decades, and we think we're changing that pretty dramatically. You know, excited to be here. How about Charlie?
Nope. I think you did it all.
Okay, good. Well, we'll move on from there.
Yeah. Thanks for the overview. You know, T.J. Rodgers, the Executive Chairman, and you were on the panel as well, that provided a really open and interesting presentation the other day. I mean, obviously, a lot of investors learned a lot, but I think one of the things we learned was more information on the Gen2 Autoline, which is really one of the keys for success, you know, driving down costs and moving to scale. You know, the timing of the design review has shown a shift from mid-March, from what I think most investors expected to be earlier this year, where the design review would have been completed.
I guess, can you walk us through the process of this shifting out for a few months, and I guess, where are we in the design review for this Gen2 Autoline?
Sure. You're right, this is a major milestone for us, is to get this second generation of our production tools, you know, to a point where we're gonna be producing products and driving revenue from it. The team has been working on this design now for 1 year. It was about January of last year where we kicked it off. We were in a situation where we saw the first line that we built, while we could produce batteries effectively, wasn't at the kind of throughput rate that we were looking for. Gen2 really, you know, addresses that, and we can talk a little more as to how. One of the early things that you have to do is complete the design.
What I can tell you is that's kind of an ongoing process. It has multiple phases to it. You know, T.J. did an unbelievable job last, the last couple days on going through the details of that. You know, I'm not sure every investor, you know, needs or understands that, but there are multiple phases there, and it's this process is a process that T.J. has used at other companies, including Cypress and Enphase and others he's been involved with, that really ensure that the design is fully completed and you actually can, you know, produce what you say.
Part of the design review process with our vendors is we are actually doing proof of concepts, and those proof of concepts are essentially taking modules of this design, of this manufacturing flow and building it and actually showing it, making it work. It, it's, you know, it's highly involved. So, you know, we are like, and the easiest way to put it, at different phases of that, right? Yeah, to get to complete completion, as T.J. pointed out, is, you know, right at the, right at the end of the first quarter. That's always been essentially what we, you know, how we had it scheduled out. There are really critical, you know, areas that we're through already, and there are, you know, others that are sorta in the works right now.
No major shift there. It's just more clarity, more, more details for you to, you know, try to better understand where we are, more transparency.
As we think-- I mean, one of the disclosures was that, you know, the line is now being expected to be delivered in the first quarter 2024 versus the second half of this year. Can you walk us through the, I guess, the milestones? Like, what's, you know, what should we think about the timing from here, design review, factory acceptance, you know, installation qualification? Help us walk through the timeline of how Gen2 should progress from here.
Well, as you just pointed out, a key milestone and one thing that he focused on is board approval, which is that in, you know, middle of March date. That, you know, essentially is, you know, at that point it's, you know, full guns blazing, moving forward, building out the equipment. The second half of, you know, of this year, sorry, I keep forgetting we're in 2023, is the fact that, you know, we'll get that equipment in-house and start building it. Some of it's, you know, moves into that, you know, early part of 2024, but it's not what I'll call critical process steps that are, you know, that you're driving through because a line comes up kind of in stages.
Okay.
Again, there, it's just all it is more transparency to actually seeing the details of, you know, the internal plan of what we, what we've been, you know, working towards.
Okay. Just to be clear, some of it's coming in this year...
Oh, definitely.
The final bits in the next year. Okay.
Yeah. Definitely in, you know, again, as previously stated, in that second half. Again, you could just got a lot more granularity in this discussion.
Sure. That's been really a key theme of that whole presentation. You know, one of the questions have been coming in, you know, since that event was just how manufacturable is the product? I mean, can it be produced at scale? You know, can it be produced, more importantly, at a competitive cost structure? You know, and at the same time, you guys also had a pretty, you know, sort of pretty steep improvement in yields.
Yeah. Yeah.
Again, it.
There, there's a lot there, though.
Yeah.
On the board.
If you can unpack just how can this be manufactured at scale? What gives you the confidence that this can be done?
Well, we're doing it now, and I know, you know, as I think T.J. even pointed it out a few times during the presentation, is, you know, it doesn't sound like we're building a lot of units, but for an advanced battery, this is the first time anybody's built this many units, both, you know, used internally for a lot of the qualifications and, you know, work that we have to do to ensure that we have a high quality product. And then we've you know, shipped to quite a number of customers. But let me, let me take a step back. I think one of the things to realize is when you look at the life cycle of this company, this company's been around for 15 years.
Kind of the first decade of it was about developing the R&D and proving out the technology, right? That's been done, and there's no question about it. I can tell you there's, you know, let's call it 50-plus customers that have taken this product, beat the, you know, what out of it, and have gotten excellent results out of it. That's out of mostly built out of our pilot line, out of our, you know, what we call our hand-built line. What I'll tell you is we did multiple iterations in that line. There's Gen1, Gen2, and Gen3 of equipment sets that exist in that line. We're essentially mirroring that again here at scale, right, for our Fab1. We always knew we were gonna go to a next gen improvement, right?
You improve throughput, you improve obviously yields. The journey that we're on is, you know, is what we expected. We believe we've proven out in this particular line, our Fab1 line today, that we can build this at scale. I've had customers come in and do, you know, their own audits of the line. Major customers, like one of the ones we announced, Samsung, have come in and said, "Yeah, you guys can produce this," right. Are, you know, willing to back the company and take, you know, some product to market because of that. We're, you know, clearly not operating at peak efficiency at this point.
Today, if you look at, you know, going back to your margin questions, I mean, obviously, the margins today don't work because we're not at scale yet. We don't see anything that's changed that we don't, you know, we can't build this product and get to that 50% gross margin that we've talked about, you know, at scale. And, you know, make a very good profit off of, you know, off of this technology. You know, I just, I don't see much that's really changed. And, you know, and you just got a lot more insight as to the, as to the journey that we have to go through to get there.
I guess, you know, just speaking about yields, When we think about these improvements you've made, and again, you're doubling, more than doubling capacity here, what type of output should we expect, for, you know, out of Fab1 here in Fremont as we move through the year? What gives you the confidence you can actually more than double each quarter?
Well, we just doubled this, more than doubled this quarter.
Mm-hmm.
As an example, from Q3 to Q4, we, you know, we generated a lot more units. We see absolutely no reason to stop. You saw the learning rate. I mean, for somebody to show you a learning rate in an investor pitch was kind of, I'm sure, unique. And that, just to give you a sense, you know, kind of that graph, if you remember it, you know, just showed a high acceleration. That, that alone, you look at that and you go, "Okay, you know, we're improving, you know, pretty radically." The other thing that T.J. showed, which was again, looking on the inside the covers, is the yields by process step, which is, you know, that's something that's usually highly protected.
In most cases, you saw each process step was in the 95% level, which shows you again, you can produce this. It's not a yield issue, right? When you aggregate those things, they gotta improve to get the total yield output. Our biggest issue with Fab1, as discussed, is really just the throughput. So it's operating at a much lower throughput. You know, T.J. talked as well about the changes aren't in each process step, so each kernel doesn't change. So actually, how we build the battery doesn't change. It's improving, sort of the flow, the automation of that, right?
I sort of put it as simple as, you know, our current design has an on-ramp and an off-ramp. Those on-ramp and off-ramps into the tool set to then build that process step take longer than the actual process itself.
Mm-hmm.
That is one of the major reasons why we're not getting that throughput. You know, those are some of the aspects and why we believe that this next gen will actually, you know, drive significant more output than what we're getting today.
Anything you guys wanna add on the manufacturing side? I'll open up the questions, but I'm gonna shift over to the design funnel, which I think is really exciting. Is there anything else you wanna add? Secondarily, is there any questions in the audience before we move on?
I guess the other thing that I would add to the, you know, to that discussion is the fact that, you know, what we seem to have lost in the translation is the fact that we currently have product we're shipping out of a, out of a process at a reasonable, you know, volume levels. Those products are the products that our customers are qualifying today, and we expect that to continue. That line will continue to produce output. We also discussed our second line, where it goes. That's been an ongoing discussion amongst all our investors. I wanna make sure it's clear. I mean, there is a discussion that we've now shifted to a belief that we should have that line in Southeast Asia.
That's really driven by the market demand of where it is, more so than cost. I think it got kinda misunderstood that, yes, cost will be better there, but we'll have built product in kind of the Asian territory where almost all of our customers are building today. Just the transportation cost of materials coming into the factory and then back out of the factory are pretty dramatic. It's a big cost reduction just from that perspective. Our lines, because they're somewhat automated, take a fairly low headcount as well. You can do that in any kind of part of the world. We've always said, "Okay, we need a North American presence.
We need an Asian presence as well. It also should give you the confidence that we think Gen2 is, you know, will be very solid and come up quickly because we're taking it and putting it in a part of the world where we don't have the expertise that we had for Fab1 that we brought up as well. There's a number of factors there that I think that play into that decision. You know, frankly, it's taken us long, and we've had a couple different changes in mentality on how to do that effectively, but are now confident that we can get it done. One of the big reasons for that is, you know, bringing Ajay in as our, you know, our Chief Operating Officer.
He, myself, others in the company have built factories in those parts of the world. We already have a established base of people and, you know, places where we can do that effectively.
Great. There's no questions. Let's move on to the demand and really your side of the, of the fence here. I think one of the things that was kinda lost in the presentation was a rather significant, you know, uptick in active designs and design wins from the third quarter to the fourth quarter, $423 million- $669 million, you know, more than 50% increase quarter-on-quarter. I guess, how were you able to shift such a large amount of that, you know, into the active design win category?
I, yeah. I can. Thank you very much for that question. I was hoping I was gonna get that the other day, because that is by far the biggest shift we've ever seen. Period, the end. I mean, not even close. I mean, we did that kind of shift over a year previous to that. One of the main drivers, and frankly, as you can tell just by, hopefully, by, you know, the way T.J. presented it, is we're pretty anal in how we run through this. This isn't like, you know, okay, yeah, okay, this guy looks like it's maybe a design win or not. No, there's, there are real milestones and real things we have to get through. To grow that much in one quarter is just a testament to actually getting production products.
He had shown some of the milestones, which, you know, again, I could describe further, but there's a milestone called QS 100 , and that essentially means, okay, you're shipping a production product to a customer, and then they're qualifying it. It's a quality product. It's quality sample is what QS stands for. That shifts these customers to, okay, now I have the confidence that you guys can go build. You're building off that line. You know, let's qualify and move forward. That's essentially the simple version for that. We did a lot of that in that quarter. I don't expect to see that kind of an increase every quarter moving forward, but you'll see a continued pretty good flow in that, and that's a really good indicator of where we are in the process.
I presume a lot of these are in the wearable camp, but how should we think about the progression from wearables to larger format devices and sort of the focus points sort of this year and as we progress over the next few years from a device point of view?
That's something I'm glad you asked because, you know, that got asked as well and maybe not answered as well as I would have liked to. We've been focused on wearables because clearly that's the first cell that we've put into production. That, you know, that drives clearly the customers that we can progress through that funnel faster. We have a, you know, a secondary cell, which is a larger cell, which is a mobile platform, which is, you know, behind that essentially. We're working through that. One of the things that may have been missed is there's a commitment from Ajay and his team to produce a number of thousands of those units in this year to again seed that market and move it forward. What I'll also state is there's less customers in that space, right?
It's, you know, you're gonna have, you know, six to eight customers that really matter, and we're engaged with all of them at this point. Most of the guys, and then this was what was asked in the call, you know, do shift from, let's say, a wearable cell, because the risk is lower, to a larger cell into the mobile platforms just 'cause there's, you know, there's a lot more benefit as our batteries get bigger, from a standpoint of energy density and capacity. We do have, you know, so yes, you can think about it as we're probably more mature in the customer engagement on the wearable side, and some of that is also medical and industrial type applications, you know, followed by mobile, and then the laptop is sort of behind that.
There's also some more stringent requirements when you go into the laptop market that we need to address as well.
Wanted to, you know, move into the technology and maybe some of the other applications. Again, I wanna see if anyone in the audience has any questions before moving on. Okay. One thing announced last year was BrakeFlow. Really exciting technology. I guess one of the things about it, though, is I think coming out of the presentation, it's maybe less clear on how to think about the timing of the qualification, timing of commercialization. Maybe, you know, prior to that, if you can remind us just how this really helps augment your competitive positioning. You know, how does it fit in with the Gen2 Autoline? When can it be qualified, and how should we think about a commercial production timeline?
Okay. Yeah. BrakeFlow, again, you know, is something we developed that we think is incredibly important. Safety is one of the biggest concerns we get from customers. There's obviously been examples of problems that people have had in variety, from wearable platforms to mobile, which is one of the ones you hear the most about. The way ours works, the simple version is, you know, if you get an internal short of some sort, we have a way to, you know, restrict the flow of the energy, and then the battery itself will never catch fire or explode. That's a pretty massive thing when you have, you know, pretty big cells, somewhere between 12 Wh and 20 Wh in some of these bigger applications. It can be pretty spectacular.
T.J. did a great video. He also loves to tinker with, you know, with the technology itself, so he feels he's really connected to it and shows kind of the effects of that. Customers cannot wait for it. I mean, I'm just getting, you know, hammered left and right by them wanting to get this product, and we're, you know, we're just at the sampling phases today of getting that into. It will be put on our Gen2 line. I think T.J. pointed this out as well, is there's one process step that's slightly different than the way we do it today. That's not necessarily how we'll bring up the Gen2 line in the, you know, initially, but we'll have that tool set in place pretty quickly after we bring that line up.
you know, our belief is, you know, we'll start ramping with our standard process technology, and then BrakeFlow will be, you know, as quickly as possible right after that.
Okay. You know, this is our CES sort of tech and auto forum, so maybe just some comments on EV. It was less so in the presentation, but, you know, we also attended the Advanced Automotive Battery Conference in San Diego back in December. From our vantage point, it seemed like there was a lot of interest in Enovix's technology for automotive. One of the key areas was around fast charging, which maybe wasn't one of your initial thoughts for a use case. Can you remind us again what your strategy is, what Enovix strategy is to address the EV market? How should we think about potential partnerships, timelines? You know, what are you looking to achieve this year and maybe more importantly over the next few years?
Yeah. You're right. I mean, part of the presentation that T.J. just gave was really more of a tactical execution of what we need to get done today. EV in his mind is still something we're really in early phases on. What we did do over this past year is we put forth a dedicated team to go after that, and we're adding to that team. It's, I'll tell you, there's a lot of very talented individuals that have done a lot of work in the EV space that we've put together.
They've gone out, and they've met with a significant number of the, you know, the OEMs and others in that sort of supply chain part of the market, and have determined that there are some other things that are more important to that customer base. You mentioned fast charging, we did some experiment work and have shown data in conferences in which we can charge a battery, you know, much quicker, you know, in a kind of five-minute horizon, getting, you know, more than 80% capacity. That's huge, and that's what they're looking for, obviously, a better customer experience. Secondarily is our battery is built in such a way that you get excellent heat dissipation out of it, much more dispersed, easily done.
That is a massive problem for a lot of the automakers today. They spend more money on actual cooling and the, you know, the infrastructure for the batteries and sometimes the batteries themselves. We found, you know, ways to actually simplify that, bring a lot more cost out of the equation with our technology, the way it's built. You can kinda look at it, just if you're familiar with it, there's a constraint system around stacked electrodes, and it's very tightly packed, and that constraint system almost looks like a heat sink, so it just kinda really dissipates the heat well. Those kinda two aspects, I'll say, and there's more, but those two aspects have gotten the attention of quite a number of people.
You know, we're diligently working on the appropriate size battery, et cetera, to sort of use as a mechanism to show, you know, that marketplace what, you know, what we can do with that technology. In this year, in 2023, what the focus is to, you know, is to engage a partner or multiple partners to take that on. From a business, you know, model perspective, it's still early days, but clearly we understand the amount of capital you would need to scale this up is much larger than where we are today. Most likely it'd be some sort of JV or licensing that we would go off and do in that market space.
Great. Wanna talk about the competitive landscape and maybe more in the conventional space, for now. When you consider your funnel and design wins, you know, are these against primarily conventional lithium-ion batteries? Are you seeing more competition from higher energy density, you know, maybe silicon anode? How do you see the competitive landscape evolving?
Well, this is always a question that I laugh about because people are so worried about, you know, all the different new technologies that are coming at us. That isn't at all who we're competing against. It's, it is absolutely the incumbent graphite guys. I mean, they're at scale, they're at cost, their products work, et cetera. If we as an organization come in to an account after some other advanced battery company has come in, we always get the comments like, "Oh my God, your stuff actually works," right?
You're, you're actually delivering something that meets the specs that you've put out there." It's actually hurt us to have others fail, like other silicon anode type, in front of us, because we then have a bigger hurdle because the customer already is, you know, a non, a non-believer, I'll call it, right? We've been, you know, hurt by that. We actually hope to see some others. The market is large enough by far to have more than, you know, more than one solution here. That, that's important to us because, you know, there needs to be existence proof out there that, this technology, you know, can be, used in those types of products.
Let me see again. Just check and see if there's any questions. Please, if you step up to the microphone. The microphone, please. Yeah, it's webcasted. If you can talk in the microphone, please.
This is the first time they've required us to get up.
All right. Sorry.
Yeah, thanks for the presentation. My interest is automotive. On the form factors, prismatic, pouch, cylindrical, large format, 2170, 4680. Relative to your product offering for automotive adaption, you know, you said as a fast charging is important to everybody. Do you have a preference or does your product work better with different form factors or chemistries? 'Cause LFP versus NCA. Just if you can kinda flesh that out, it'd be helpful. Thank you.
I mean, we're pretty agnostic, in general, to kinda generalize what you just said to, you know, different materials and as well as different form factors. Probably the strongest thing based on just, you know, the geometries of it is it has to be some sort of 90-degree angle. Cylindrical cells are not necessarily what we would find ourselves in. What I will say is we do have some people inside that believe they could put it into a cylindrical cell. Not saying we're doing that today. The form factor itself is to be determined. That's part of this, you know, process with a possible partner because there are multiple options to go do, you know, for us.
You know, that, you know, I don't wanna speculate too much, but you can imagine it wouldn't be significantly different than what we're doing today. We have shown kinda three generations of products, and actually the packaging does change over that period of time because we can actually use what's now the internal core of the battery as a package itself instead of throwing a pouch around the outside of it, if you're familiar with the technology. You know, like I said, there are some factors there, and it really depends on the engagement with the customers in that.
Great. One of the things that came out of the presentation, you know, I, I think maybe it was just misunderstood, but basically the balance sheet, use of cash burn, timing of maybe potential capital raise. I mean, how should we think about the use of cash over the next few years? You know, when will Enovix need additional, capital? What avenues exist for Enovix to raise capital or maybe potentially leverage partnerships or other arrangements?
You know, maybe true. I mean, I don't quite know how it was, you know, how it was taken on the commentary about capital. One of the things I will say just from history, and I've worked with T.J. for, you know, over 20 years, is he's incredibly capital efficient. That is like a number one thing for him. I thought the message that should have came across was, "Hey, we're gonna be really efficient with the money that we have. We are gonna make sure we use it effectively." We still have quite a bit to be able to scale out, you know, some of the Gen2 lines, et cetera. That, you know, we didn't talk about other sources of capital.
I can tell you we've had numerous conversations with, you know, key customers that are very interested in infusing some capital into either building out lines, building out capacity, that sort of thing. That's not unusual sort of in the battery space anyway. That is clearly an opportunity for us. Are we there yet? No. We still, you know, we still have ways to go on that. To be determined, you know, as 2023 progresses on, you know, at the tail end of 2023, I think some of that will become probably clearer. It's clearly not looking to have any kind of dilutive event at the, you know, in the near future.
Anything that, you know, if we ever do go out to raise more capital will be with a, you know, clear positive impact to allow us to scale even larger or faster.
Well, Ralph, and Charlie, thanks for joining us. This is really insightful. Unfortunately, we're out of time. You know, best of wishes for 2023. We look forward to following the progress.
Thank you very much.
Thank you.