Good day, and welcome to QuantumScape's 4th Quarter 2020 Earnings Conference Call. My name is Sheryl, and I'll be your conference operator today. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Operator.
Thank you. John Sager, QuantumScape's Head of Investor Relations, you may begin your conference.
Operator. Thank you, operator. Good afternoon and thank you to everyone for joining QuantumScape's Q4 2020 earnings conference call. To supplement today's discussion, operator. Please go to our IR website at ir.quantumscape.com to view our shareholder letter.
Before we begin, I want to call your attention to our Safe Harbor operator for forward looking statements that is posted on our website and as part of our quarterly update. The Safe Harbor provision identifies risk operator, including uncertainties posed by the difficulty in predicting future outcomes. Joining us today will be QuantumScape's Co Founder, CEO and Chairman, Jagdeep Singh operator and our CFO, Kevin Hetrick. Jagdeep will provide a strategic update on the business and then Kevin will cover the financial results and our outlook in more detail. Operator.
With that, I'd like to turn the call over to Jagdeep Singh.
Thanks, John. Welcome to our first earnings call as a public company. Operator. Earlier today, we published a letter to our shareholders summarizing the major developments from the last quarter fiscal year. Operator.
If you haven't already read it, we encourage you to take a look as our shareholder letter will be the primary way we report our progress to you. Operator. In addition to the SEC website, you can also find it on our company Investor Relations website, ir.quantoscape.com. Operator. I won't repeat all the contents of the letter here, but I would like to call your attention to a couple of key highlights.
First, operator. For those that are new to the QuantumScape story, some brief background. We were founded in 2010 out of Stanford operator. With a mission to revolutionize energy storage and enable a sustainable future. First application we focused on is the transformation of the automotive operator to an electrified version, which we believe represents both a very important part of the solution to the emissions problem operator, as well as an opportunity to create tremendous value over the coming decades.
Over time, we expect to push into other markets, operator. We are a pioneer in the development of a new type of battery, the solid state operator. Our technology replaces the polymer separator used in conventional batteries operator, enabling us to replace the carbon or silicon anode used in these conventional cells operator. With an anode of pure metallic lithium, which in turn allows us to make batteries with higher energy density, greater driving range on a single charge, operator. We believe these are some of the fundamental issues holding back widespread adoption of battery electric vehicles.
The beauty of our approach is we deliver these benefits not by increasing the complexity of the battery, operator. By simplifying it, eliminating the anode layer of conventional cells. As a result, we believe the cost of these batteries at scale operator. Last December, at our Battery Showcase event, we unveiled for the first time operator. The performance data of our single layer cells, making clear the benefits of this lithium metal approach versus the traditional lithium ion approach.
In particular, operator. We showed data showing the cells were capable of achieving long cycle life, now at over 1,000 cycles to run 90% of initial capacity, operator. While operating at near room temperatures of 30 degrees Celsius and high current densities or rates of power of 1C. In addition, operator. We shared data showing these cells were capable of fast charge rates of 15 minutes to 80% state of charge, operator.
Excellent performance relative to conventional sales on the most demanding drive cycles, such as those found on racetracks and operation at low temperatures, operator. We believe this data marks a new high watermark for the solid state battery industry operator and are unaware of any alternative solid state approach with better performance results. Having demonstrated this level of performance operator. We are therefore very pleased to report for the first time that we have assembled 4 layer cells in the 30x30 millimeter form factor operator. And the decels have reached close to 800 cycles to over 90% capacity retention at both 1C and Cthree rates operator at 30 degrees Celsius.
Substantially similar to the cycling performance we showed in our single layer cells and demonstrating it is possible to stack our single layer operator. We use 30 by 30 millimeter cells operator. Made from separators cut from our standard target commercial area separators because it allowed us to effectively quadruple our current output operator. While there is still a lot of work to be done and we could encounter new challenges as we increase our layer count, operator. This is an incredibly important result and we are excited to have this so early in the year.
We now need to make these multi layer cells operator. Using our commercial area 70 millimeter by 85 millimeter layers, increase the number of layers, aiming first for 4 layers operator and subsequently for 8 to 10 layers by year end, optimize the manufacturing processes and address any new challenges we find. Operator. We believe that if we achieve these milestones, we will be on track to achieve our goal of delivering prototype battery cells to our customers operator in 2022. The other thing I'd like to draw your attention to is that based on this recent progress and to help with further scale up, operator.
We have decided to build our own pre pilot line facility in San Jose, which we call QS0. Operator. QS0 is intended to have a continuous flow, high automation line capable of building over 100,000 endunereum cell samples operator and we expect to be producing sales on this line by 2023. QS0 will operator. We will provide the additional capacity we need for our development work and will enable us to accelerate work on the next generation of manufacturing tools.
Operator. It will also provide capacity to make enough batteries for hundreds of long range battery electric test vehicles per year. Operator. This will allow us to provide early sales to VW as well as other automotive partners, explore non operator. With that, I'll hand it over to our CFO, Kevin Hetrick to say a few words about our financial operator and then open it up to Q and A.
Kevin?
Thanks, Adi. Before I get perspective on our financial outlook for 2021, operator. I'd like to first give a little color on our Q4 and full year 2020 results. In the Q4, our operating expenses were $30,000,000 Excluding operator. Stock based compensation, operating expenses were $22,000,000 In accordance with U.
S. GAAP, we were required to take a non cash expense of 6 operator. Relating to warrants and Series F preferred stock issued prior to the business combination, bringing our GAAP net loss in the 4th quarter operator to $695,000,000 These preferred warrants and Series F preferred stock originally classified as liabilities in accordance with U. S. GAAP operator.
We're subject to non cash fair value measurement at issuance and at each reporting period. The final re measurements were done at the close of the business combination. Operator. As a result, there will be no further remeasurements related to these. On a full year basis, our operating expenses were $81,000,000 operator for $64,000,000 excluding stock based compensation.
Our GAAP net loss for fiscal year 2020 was $1,100,000,000 operator. Of this amount, dollars 1,000,000,000 represents the non cash fair value adjustment of the preferred stock and warrants in accordance with U. S. GAAP operator. With respect to share count, I'll be providing numbers rounded to the nearest 0,100,000 shares.
Operator. We ended 2020 with approximately 364,000,000 shares of common stock outstanding. Operator. As of December 31, 2020, the company had a total of approximately $466,600,000 issued and issuable shares, operator. Including those issuable upon the exercise of warrants, shares issuable upon Volkswagen's 2nd tranche investment operator.
And shares issuable to employees and consultants upon the exercise of outstanding options or vesting of RSUs. Operator. Note that all the aforementioned shares, warrants, options and RSUs have been registered on the company's S-four, S-one and S-eight filings. Operator. With respect to cash, we used $37,000,000 of free cash flow in the Q4 $85,000,000 for the full year 2020.
Operator. We anticipate free cash flow burn to be in the range of $230,000,000 to $290,000,000 for 2021, of which approximately 40% to 50% is CapEx, operator, including investments in QS0. These investments will support our multilayer work, advanced production process maturity, notably to make our solid state separator films operator for Cell Assembly and support customer engagement. We expect to use less than $60,000,000 of net cash in 2021, operator. Assuming receipt of proceeds from the Volkswagen financing and assuming exercise of public warrants.
This would allow us to enter 2022 operator. With a liquidity position of over $900,000,000 sufficient funding we believe to fund us through production. Operator. Of course, the pace with which we are able to spend will depend on several factors, including the ability to ramp headcount and the maturity of our production processes, including the level of its automation. Operator.
With nearly $1,000,000,000 on the books as of Q4 2020, the strength of our balance sheet we believe will give us the operator. We'd like to thank our investors for their support and belief in our mission to help usher in the battery and electric vehicle revolution. Operator. With that, I'll pass it back over to John. John?
Thanks, Kevin. As a matter of practice, going operator. We'll begin the Q and A portion by asking our management team a few of the most pertinent questions on the minds of investors. For future reference, investors operator. You can submit questions through our Investor Relations inbox by emailing irquantoscape.com.
This quarter's most frequently asked questions are as follows: operator. Competitor progress and announcements. It seems like others are going to get to market before QuantumScape and have already achieved multi layering. Operator. Can you talk about your progress as it relates to that of others like NIO, Toyota and Solid Power?
Sure. Operator. The key point to note here is that it doesn't help to have a multi layer cell that uses a single layered building block that doesn't work. It will be the equivalent of trying to put up a multistory building when you haven't been able to make a single story building without collapsing on operator. So we haven't seen any data from any of the competitor that has shown a solid state separator capable of delivering long cycle life operator.
As a result, the players you just mentioned operator. Those that are reverted back to carbon based data, which of course results in a loss of many of the key benefits of the solid state nuclear metal architecture, operator. Including energy density, fast charge and cost and those that use lithium metal, but can only work under compromised test conditions operator. We believe we're the only player to have shown a solid lithium metal single layer building block operator. So for those who are interested in learning more, we operator.
We've actually published a survey of the solid state battery landscape and you can find it on our website at ir.quantumscape.com.
Operator. Okay, great. Next, can you explain the different timelines between 1C and Cthree charging?
Operator. Sure. This is terminology used by the battery industry and it's simply a way to refer to the rate of charge and discharge. The letter C in that description operator. Refers to one charge or discharge and the number refers to how many such charges or discharges can be performed in 1 hour.
So 1C means 1 charge or discharge per hour, operator. C03 means 1 third of a charge of discharge in 1 hour or 1 full charge of discharge in 3 hours. And note that higher C rates operator. Because the Quantum Skip technology is robust under high power conditions, we're actually able to run out cycle life tests at 1C rates, operator, which allows for faster data collection and shorter development cycles. Finally, I'll point out that with conventional batteries, operator.
It can either be designed to be energy cells with high energy but low power or power cells which have high power but low energy. Operator. One of the unique things about the Aquaroscape technology is it's an energy cell with a target of 1,001 hours per liter, operator. Higher than the cells used in today's best selling EVs, for example, which are around 700 or so watt hours per liter, but can still be charged at high rates operator.
Okay, great. Our next question is, how will future improvements in lithium ion chemistries
Sure. So most of the improvements in the world of lithium ion stem either from better CapEx or better Enos. On the CapEx side, we're completely operator. So we're able to take advantage any improvements on capital technology, including material level improvement, such as high nickel content, operator. As well as manufacturing level improvements such as dry electrode processing.
Now because these improvements are being driven either by material suppliers operator. On the analyst side, the improvements are related to adding a certain amount of silicon to the carbon anode, operator. However, silicon expands and contracts so much during cycling that it adversely impacts cycle life of B cells. So the amount of silicon used in B cells is limited to a fraction of the anode. As a result, operator.
This approach only provides a small benefit to Antigenvalue. By contrast, a lithium metal approach eliminates 100% operator of the carbon or silicon in the anode resulting in a significant increase in energy density. Thus, we see our solid state lithium metal approach operator.
Okay. And our final question, operator. What makes you feel like you'll have a sustainable cost advantage over the rest of the industry?
So in our architecture, we eliminate the traditional Argon or silicon anode entirely, which means we get rid of the anode materials, the anode electrode manufacturing line and the anode formation process, which is a multi week long process in which a chemical side reaction is allowed to occur between the carbon particle and the liquid electrolyte. Operator. As a result, given we believe our separator will be in the same order of magnitude and cost as conventional separators, we expect that the Quonsky
operator. All right. Thank you, Jagmeet. We're now ready to begin the Q and A portion of operator. Operator, please open the lines for questions.
First question comes from Mark Delaney from Goldman Sachs.
Operator. Yes, good afternoon. Thanks very much for taking the questions and very Happy to have the company having its first earnings call. I wanted to ask about the pre pilot facility that you announced today and the Additional sales is going to give the company to work with. Do you think that changes your outlook that you articulated in the investor deck in terms of operator or potentially higher in magnitude compared to what you previously outlined.
Yes. Hey, Mark, this is Jagdeep. Thanks for the question. Operator. So the QS0 is really designed to produce cells for test vehicles.
So we don't expect it's going to have a material operator. Directly in the sense that it's going to make cells that we will provide to our automotive OEMs to make test cars. Operator. But it does have an indirect impact in the sense that it increases the probability that we can have a successful rollout of QS-one operator and subsequent manufacturing bills. So that's the way I would think about what QSRO is designed to do.
That's helpful. Thanks. And then operator. In terms of the run rate on operating expenses that the company guided to for this year, operator. So I think 50% to 60% of the cash outlays that you put in your shareholder letter.
I think the implied operating expenses operator. In 2021 or a little bit above what is implied in the last investor presentation for 2022 operating expenses. So it seems like perhaps the company is taking up its planned investment levels and I assume that's correlating operator. And some of the ability that the company has to do a bit more, but I am hoping to better understand to what extent you are in fact operator. Taking up your operating expenses compared to the prior plan.
Kevin, you want to take that one?
Operator. Sure. Mark, as you would have seen from our current run rate, we're spending we spent $27,200,000 in operating activities operator in Q4 and $10,200,000 in CapEx. And as you correctly noted, the guidance was $230,000,000 to 290,000,000 operator in 'twenty one with about 40% to 50% being allocated towards QS0. QS0 is incremental to the plan.
Operator. So there will be the OpEx portion. You would expect it to be a little higher, leaving 'twenty two and beyond. We don't have specific guidance on that number in this call.
Understood. And just lastly, in terms of some of the operational milestones, operator. Thank you for the update on the multi layer and that's good to learn more about. The other area that was discussed by the company was operator. In terms of getting the yields up on the separator manufacturing, I don't know if there's anything on that front that you're able to share with us today.
Operator. Yes, this is Jackie. Yes, there's nothing we're sharing today on that, but I think the important milestone really operator. It was demonstrating that when you take single layer cells and make multi layer stacks out of them, in this case, 4 layer stacks, operator. That the capacity retention and the cycle life behavior doesn't change materially.
So that's really what we were operator. And as I pointed out in the opening remarks, obviously, there's more work to be done there to scale up production operator to have the layers be in the actual production size of 70 to 85 and to deal with any other unforeseen issues that might arise as we complete that process. But the core result that the single layers can be in fact staff into multi layer cells with data that looks substantially very similar to what the data was that we showed in single layer cells. Operator. That's very exciting to us.
And to have that this early in the year just means that we have the rest of the year to accomplish the rest of those tasks that I mentioned in terms of scale up.
Operator. That's very helpful. Thank you.
Sure. Great questions.
Thank you. And our next question comes from Adam Jonas from Morgan Stanley. Operator.
Thank you. Hello, everybody. Hey, Jagdeep. First, great disclosure. Thanks for that.
Operator. Couple of questions. On QS0, I think it gives you, to your point, a chance to test prototypes with other, of non Volkswagen customers and potential customers as well. I'm curious if today you're able to update us on the status of any discussions with non VW customers as I imagine your IPO operator. The listing of the company itself and all the attention around it has can create a lot of interesting operator.
Commercial Benefits, I'm curious if you've seen an uptick in those discussions or anything you care to update us at this time? And then I have a couple of follow ups.
Hey, Adam. Thanks for the question. Yes, so as you correctly guessed, I mean the operator. We have said before that we've actually had ourselves tested by multiple automotive OEMs. So VW obviously is the only one that we've announced.
Operator. But I think that as you know, the VW deal as great as VW has been as a partner, that deal is non exclusive. So we are free and we fully intend to work with other OEMs in the fullness of time. We're not announcing anything on that today obviously, but we fully expect to work with multiple OEMs over time. Operator.
And beyond automotive, Williams, we're also seeing interest from other sectors, some of the ones we mentioned earlier, including the operator. Stationary storage for the grid as well as consumer electronics. And we're right now, we are constrained by operator. Our ability to just produce enough cells to provide customers with cells to test, but as we bring ops. Online, they are able to produce more cells.
That's one of the big benefits of having that production capacity is we will in fact be able to make this technology available operator to the customers that have expressed interest.
Thanks, Jagdeep. Next question is on the factory location of 1 and the expansion in Europe. I think most people on this call would expect that it might be in Germany. Operator. I don't know what we should how you're thinking about that, particularly as you're seeing other operator.
Battery capacity investments being closer to renewable sources of energy, you're seeing Norway get a lot of it. So I'm curious if Again, I'm not trying to ask you to break new news that you didn't put in your letter, but how you're thinking about proximity to Volkswagen versus renewable sourced ops at the source in manufacturing for what is a very energy intensive process. Thanks.
Yes, it's a great question. And I think what I operator. Those are exactly the kind of issues that we need to balance as we make those finalizing divisions. So on one hand, the trend in the industry is to locate battery manufacturing close to where the vehicle manufacturing is, we did that for the Tesla Gigafactory. Operator.
On the other hand, you also need to balance the supply chain aspects of this item because that includes power. It also includes other supply that goes into the factory, includes labor. It's a multi dimensional kind of a problem. And I think the main takeaway is that operator. How close is going to be a function of how those other dynamics come into play.
Okay. And just a final one for me, Jagdeep, you mentioned other markets. Operator. When I hear you talk about the energy density, both gravimetrically and volumetrically, operator. Of course, there are direct implications to electric aviation and EV toll market.
And some of the scenarios we're running at least, operator. The size of those markets could be in some cases very, very large, in some cases maybe even larger than the automotive market. Curious what you think about that market potential of eVTOL or urban air mobility. Is it something that you at a high level are exploring Even though you don't mention it and call it out specifically in your prepared remarks.
Yes, that too is a good question. EV toll is definitely a very interesting new operator. And we are in fact in discussions with players in that sector. It's a little too early for us to operator. I'll be able to predict just how big that market will be and when it starts taking off.
But as you correctly surmised, that market is extremely sensitive operator to the gravimetric energy density in particular, because that obviously impacts the whole application pretty significantly. Operator. And so the energy density benefits that we're offering make it a really compelling fit for that application. So I think what it comes down to in the end is we have in the near term at least, in very near term, we're going to be somewhat capacity constrained and what that gives us the luxury of is really being able to pick Those markets that have the most compelling fit in terms of the overall application, the economics for us, for our customers and so on. Operator.
But as we make progress on sort of narrowing down some of those near term expansion markets, we'll be sure to communicate them as well. Operator. Operator. Operator, if there's operator. Another question?
We can go.
Please go ahead. Our next question comes from Rob Lachie from Wolfe Research. Operator.
Hi, everybody. Wanted to ask just on the about the gating factors operator in testing and moving to 8 to 10 layers. Maybe you could just give us a little bit of color on what Challenges are that you'd need to overcome. I'm assuming that there's it's the volumetric changes that those cells operator. Encounter when they're being plated with lithium?
And also how many layers do you anticipate in the final commercial form factor? And what are the biggest Development challenges you need to overcome in order to achieve that.
Yes. Hey, Rod. It's Jaydeep. Operator. The number of layers is a little bit of a variable commodity.
It depends on which customer and which pack design and which modules are we talking operator. So there's no one number I can give you there. I think if you say there's going to be a few dozen layers in virtually every flavor of cell that we make for different OEMs, Then you'd be in the right ballpark. I mean, 3 dozen kind of captures it. It's going to be more than a dozen and operator less than a few 100 times, somewhere in that range, but a few dozen is the right range.
As far as the main challenges to get there, To be quick, Ken, the major issue not issue, the major need that we have in the very immediate term is just to make more of these materials. Operator. So we can make more cells. In multi layer, what isn't generally appreciated in multi layer is that if you're making multi layer cells, you need a lot more layer. So 4 layer cell, for example, needs a quadrupling of your manufacturing capacity.
10 layer cell means an order of magnitude more capacity. We sized our engineering lines operator. To be appropriate for the development work we're doing on single layer cells, once we had the single layer data that we shared with the world in December, we started ramping up production tools and equipment to be able to produce more cells. But unfortunately, a lot of those tools, we The good news is we can acquire those tools from existing suppliers, so we don't need to make those tools ourselves. But on the downside, those tools have lead times operator.
So you can't just turn on and figure and make more cells overnight. So there's a lot of tools waiting on that have been ordered operator. That needs to be delivered, turned off, configured. That's really probably the most immediate gating item to get multi layer cells. Operator.
Once we get that capacity installed, we're going to be able to produce more cells, do the appropriate engineering work to finish that development cycle. And once we get to our target of 8 to 10 layers by year end, operator. At that point, we will have, as I mentioned in the prepared remarks, the building blocks to be able to
The pilot line in 2024, presumably you're going to want to scale this as much as
possible with
operator. So what could the economics of that look like as you want to expand beyond 2024?
Well, I mean, to make sure I asked the question, are you asking about kind of the business models for how we might do more production
operator. It's being built by a variety of different cell manufacturers elsewhere, right? So that would involve some licensing arrangement. It would be Challenging to manage that all by yourself.
Yes. So what we've said is there's sort of
operator. A handful of key fundamental ways you
could do production, right? The simplest way is to do it all yourself. That's one of the ones you mentioned, right? Operator. The next way is we have this JV type model that we're doing with Volkswagen.
In that case, we're obviously bringing the core operator. And they're bringing a lot of general high volume, high quality manufacturing impact on. The other model is where we can actually outsource some of the components that go into our sales. So for example, the really unique part of what we're doing is of course the solid state separator. Some of the capital work could potentially be done by 3rd parties.
So we're obviously exploring that. The ultimate, I think in terms of outsourcing would be if we were to just license the IP to a third party manufacturing company. And the challenge there of course is It's just IP protection, IP diffusion, right? You don't want to license IP to somebody unless you have Super high confidence that IP is going to be protected. Otherwise, you risk kind of diluting the fundamental, the crown jewels of operator in some way.
So I think what we're doing is trying to just look at the economic trade off and balance between those different models. Operator. For sure, we're doing the JV with BW, for sure we're doing our own production with QS0. Operator. And we have no particular desire to spend any of our capital or any of our team's energy or bandwidth operator.
We want to basically do things that are not available elsewhere. So if we can buy something that has sufficient quality and liability to meet our needs from a third party, we would absolutely want to pursue that. Operator. It's only if somebody doesn't make something that we need that we want to do it ourselves. That's a general philosophy that you can assume we will use operator going forward in that sense.
Okay, great. Thank you. Sure thing.
Thank you. Operator.
Congratulations guys On the first conference call, thanks for all the information. One of the things you talked about and Still trying to understand the layering. Congratulations on that step. Once you have the sufficient number of layers, how difficult You anticipate this transition into a PAC? That's my first question.
Up. Yes. Hey, Ben. How are you? Thanks for the question.
So, the number of layers, as I mentioned earlier, That we have in each cell is going to be really a function of what the particular pack and module needs. So it will kind of be designed with the pack and module in line. And once you have that cell with the right number of operator. Ben, the pack level design is relatively speaking straightforward in the sense that operator. The electrical behavior of these cells is similar to what is already being used.
We use the same capital material that's conventionally being used. So operator. The discharge profile electrically will be very similar. The thermal behavior of these cells, we expect will be better because operator. The lithium metal that makes up our anode is a much better conductor of heat than traditional carbon based anode is.
So we can shuttle away heat much better. Also our separator is much more tolerant to heat. It's stable to very, very high temperatures. The BMS interface should be very similar to conventional BMSs. So we think that integrating at the PAC level should be it requires engineering of course, operator.
But because the cells have already been designed, will have been designed to the particular module impact specs. We don't expect any fundamental challenges there. The real key is just being able operator. Complete this multi year development that we showed the really big data on earlier today.
Okay. Operator. You mentioned consumer electronics and then stationary storage and potentially other markets. Could you talk about why, because maybe it's counterintuitive operator. Consumer electronics seems like it could be the easiest market to go after with the less onerous requirements around the packs or the batteries themselves, but maybe that's just the folks about your relationship operator.
Moving you towards the auto market first?
No, it's a great question. I mean, we spent many years we operator. We've got a lot of time in the early days of the company trying to figure out which markets we should go after. Look, there's many battery companies that try to do it all operator. And our fundamental belief is as a startup, we had to focus.
We're trying to do too much. This results in doing nothing well. We wanted to we'd rather we thought we'd rather operator. Pick a smaller number of markets, but really solve their problems really well. And the question is, which one do we pick if we can't do them all?
And based on our analysis, You asked me about consumer electronics without a doubt is a much easier market, doesn't need the same power density, no one's going to need 4C chargers, 15 minute charge for operator. The operating temperature doesn't need to be negative, whatever, 10, 20, 30 degrees, pretty much going to be a positive 10 degrees Celsius is a standard spec. Operator. You don't need as many layers. It's just easier in so many ways.
Having said that, operator. We saw that the size of the market was just so much bigger with the automotive application. Operator. Each car, each long range BED, let's say, for example, Tesla Model S Class Vehicle, has the equivalent of 10,000 iPhones worth of batteries, right? So operator.
That's 4 orders of magnitude bigger, which is massive, right? So if you look at Apple's volumes, I haven't checked recently, but even if Apple sold something like 200,000,000 phones a year, operator. That would be really the size of a small pilot line. That's not much more than our first up. VW Phase 1 pilot line we'll be producing.
So it's a very small one for what we can do here. The second point we make is operator. In terms of impact to the application, cell phones, they'd love to get more battery. The consumer devices would love to reduce the volume taken up by the battery by say a factor of 2, so they can squeeze in more functionality and more electronics into the other phone. But in terms of but they have perfectly fine phones right now that there's something a lot of.
Whereas in the automotive space, we felt Like these benefits are really disruptive enablers of a much higher level of penetration. So, it would be the combination operator. The importance of our technology in the automotive sector compared to others and the size of that sector, operator. We locked in on that particular space pretty early in our lifecycle. And I think overall it was a good decision because we were able to get this B2B partnership which It's been phenomenal for us as you guys already know.
And I think we executed exactly on what we were hoping, which is that we picked one problem and we think we're solving operator. And having solved it, because in some ways as you pointed out, this is the hardest of the problems, expanding to the other sectors is really in some ways a move downhill. Operator. So we feel like we're well positioned to now that we have this sort of the high ground to go ahead and expand into other segments over time.
Operator. That's very helpful. And just if I could sneak in one more. Thank you for the helpful landscape paper here. Operator.
I was wondering how difficult or how you guys get the information from your competitors. Are you able to Actually get cells and test them and then vice versa, are people out there able to get your cells
operator. Yes. So, absolutely great questions all. So, first of all, many of the other players in the solid state battery space Either startups or small research labs within big companies that publish their results. So ops.
So we know what the numbers are they're sharing. And the other way we have mentioned about this is not just by reading papers, but operator. Remember when we started the company, we were looking for the solid state material. We didn't have an answer back then 10 years ago. So we literally had to go through operator.
Many, many different materials in our own lab. We went through we made lots of sulfides. We made lots of polymers. We did a lot of work on a lot of different types of approaches. And in doing that work, we just were able to firsthand understand what the limitations were and what the issues were.
Operator. When people talk about the sulfides, for example, that's a pretty popular class of material. The sulfides have one big advantage, which is that they're very highly conductive, office about the same connectivity as today's liquid electrolytes. That's what made them that's what put them on the map. People got really excited that we have solid state materials that conduct lithium ions as well as liquid can.
The problem is sulfides, A, in our work operator. We concluded they would not prevent dendrites and B, they're the least stable of the commonly used solid state materials. So if you go along say 2 point below 2.2 volts or so. You see fundamental instability leading to chemical side reactions and impedance or resistance growth, which operator. So we did a lot of that work in different materials.
That's what's given us the confidence to know that this is not going to be an easy problem. And people Many people out there, many groups are working on material systems that in our view are dead ends. Operator. We hope for their sake they can find ways to make them work. And certainly, the market is big enough to where multiple players will absolutely be able to play in the operator.
It's such a massive market, but having other entrants is in no way going to reduce our opportunity. Operator. But to be candid, we just haven't seen anything out there that's compelling. One thing we will point out is that operator. A lot of people make claims, a lot of people have announcements, but very few people actually have shown data and the ones that have shown data, operator.
The data makes clear that it's compromised test conditions, right? So if you look at the key requirements as mentioned in that solid tube basket overview. You need to have a saucer separated that can run at high current densities, like you don't have to drive a car and to charge fast in 15 minutes. You need to run at regular temperatures like 30 degrees Celsius, not just elevated temperatures like 70 or 80 or 60 degrees Celsius, operator. And you need to have long life.
It has to go 800,000 cycles with minimal degradation. And no single player that we are aware of other than what we've shown has shown data comparable to that. So this is also why we talked about the fact that building multi layer cells with a building block layer that isn't capable, operator. It's just it's not a it doesn't it's not a sound strategy. You're not going to if you can't make a single story building, stand up.
You're not going to solve that problem by trying to make a multi story building. So that's kind of how we know about these competitive operator. It's a combination of having seen papers published by those groups directly and then our own work in many of these material systems in our own labs.
Operator. Thanks again.
Absolutely. Thank you. And our next question comes from of Osha from JMP Securities. Please go ahead. Your line is open.
Hello, Darren. Let me add my thanks to everyone else for operator. A couple of questions. You've got a nifty chart in your industry overview showing different cathode materials and that kind of begs Your question, obviously, you're trying to go with more of a commodity solution there, but has there been any sort of interesting learning or levers that you're finding you can operator in terms of the cathode material and then I do have a follow-up.
Yes. I mean, I think one of the things that we pointed out is that our system is Relatively cathode agnostic. What that means is once you have a solid state separator that works, you can use any cathode. I would go further. I would say not only is it cathode agnostic, but you can actually with this kind of a system, you are you open yourself operator to a broader range of cathodes than can be used in conventional cells for the simple reason that our solid state separator provides an electrical isolation between the operator.
Now in a normal cell, if you remember our schematics from our various presentations, you have the cathode layer, you have the polymerase inhibitor, which is porous and the anode operator. And remember that there's a the whole cell is flooded with a liquid electrolyte, which is the solvent through which lithium ions move up and down. Well, that liquid is in contact with both operator. Which means that it has to be stable at both the low voltage of the anode and the high voltage of the cathode. Operator.
And it's very hard to find materials in nature that have that wide of a stability window relative to voltage. So when you isolate the cathode operator. To just the cathode by having an electrical insulator, which is our separator between the anode and cathode, you now no longer need to have materials that are stable to low voltage. So that actually allows you to potentially use a broader operator to select from a broader universe of materials for the cathode and cathode. So that was a long answer.
The short answer to the question is that operator. We have a lot of patents on different types of cathodes. If you look at our patent portfolio, hopefully after you'll see a ton of patents on operator. A capstone tool known as the metal fluorides, which is a conversion chemistry. Those are in some ways some of the highest energy density materials.
In fact, on that chart you're referring to That shows a dozen capital materials. Those are the ones on the extreme right. Yes. Yes. But we didn't see a need to try to commercialize that operator.
Day 1 because the solid state separator with the lithium metal anode gives you enough of a win to where we could focus on getting that to market And then having the new cathodes be sort of
Second question, I mean, another sort of PVD and CBD, whatever processes where you're making layers of things, you add layers, things don't operator. But in the end, rather than having material be wasted entirely, you can bin it depending on the amount of imperfections you've got. So I'm just wondering if you're looking at your process and I've got 36 layers or whatever and something goes wrong in layer 35, is there a way to bend that, officer or do you lose the whole thing?
That's a good idea. I mean, I think once at this point, we're just focused on trying to get the overall operator. Over time, that's certainly a great strategy to use obviously very effectively in the word semiconductors, right? And operator. If you have a unit that doesn't meet the specs for one application, but does meet the specs for a different application, you can absolutely bin it and instead operator.
Scrapping it, you can just use it for that lower value of applications. So those are exactly kind of things that we plan on doing over time. I think right now we're just kind of focused on operator. Increasing kind of the base level of production using more sort of high throughput tools, more automation,
operator. Okay, great. And then my last question, sorry for the multiple questions. I know You had said that all of the initial learning is around the pouch cell form factor. I mean, has there been any additional thinking on Whether this could work in a prismatic or a cylindrical form factor?
And that's it for me. Thank you.
Good question. So we have said that we don't expect to see this being used in cylindrical form factors. Even though our separator as we've shown images operator. It's relatively flexible for ceramic. We actually have a sufficient bend it without damaging film.
We don't intend to actually wind it operator into a dialer or say of a pencil or something. Both prismatic pouch and prismatic can cells are very much on the radar. Operator. And at the end of the day, we will work with our automotive OEMs to pick the packaging format that best meets their application. So we're not There's no religion on that at the bottomscape.
Our value creation resides around the materials that go into the battery into the cell, how we package it, we're going to let our OEMs have a significant role in helping us helping guide us there.
Operator. Thank you. Operator. And this concludes the Q and A portion of our call. I'll now turn the call back to Jagdeep Singh for closing remarks.
Operator.
Yes, I mean, I just want to say thank you everybody for joining us on this call today, our first earnings call. And we look forward to reporting our progress to you over the rest of operator. We will plan on using the same format for our subsequent calls. We will issue a shareholder letter that highlights the progress for the quarter. Operator.
We'll have a short earnings call, which will present a few highlights of the shareholder letter and then really spend most of the time on Q and A. Operator. I look forward to continuing to work with everybody going forward. Have a great afternoon.