Kevin Hettrich, Chief Financial Officer of QuantumScape. Thank you for joining us.
Thank you for having me, Adam.
You had a morning loaded up with hedge fund one-on-one, so this is gonna be relaxed.
Adam promised me a nice, relaxing macro conversation.
Right down old fairway. So if you wanna throw some, some curve balls at Kevin's way, you know, just raise your hand, get involved. But I'd like to just start out, maybe some, some of the initial messages for the audience and where you are on the story of, on the journey of solid- state batteries and saving the world with more energy-dense batteries.
We are on the path to doing exactly that. Solid-state lithium metal batteries promise improvements in the things you care about: energy density, charge rate, safety. You get there by taking a ceramic sheet and eliminating today's anode material, the graphite and the silicon. You get pure lithium metal, and that's what leads to all those benefits. We've been at this for some time. If you look at the data of our prototypes, we have evidence we're far ahead of everyone else. When we became a public company, we were showing that the chemistry worked on a single layer. Since we've taken that to well over 20 layers, started automotive A-samples, which we shipped at the end of 2022. After about a year of data, VW released that in January of this year. Those cells performed great.
We are marching towards B-sample qualification. If we're successful, we'll start that this year. I think we'll probably talk about where we are more. Over the summer, we signed a big milestone agreement with Volkswagen to do a collaboration and a license, initially at 40 GWh , expandable to 80 GWh. That's strategically important to us. It does great things for our capital requirements. It's a non-exclusive license with great IP terms for us. And we're very excited about the progress we're making on how that part is made. It's not enough just to have the world's highest-performing battery in terms of power and energy. You also need an ability to make it at scale, at quality, at the right throughputs and cost.
We have a process to do that, the first stage of which is called Raptor. It's already up and running, and the next stage is called Cobra, and if we're successful, we'll land the equipment for that this year, so we can start making parts off of it next year. It's been a good summer so far.
Great. Thanks, Kevin. So, maybe you can comment on your development customers just to, you know, help inform the audience. How's it split between auto and non-auto cars, drones, eVTOLs, CE?
So this is one of the interesting things about having a strongly... a battery with such high performance, energy, density, charge, safety, life, cost. These are things every application that has a battery would want. The applications that don't have a battery, if you put a battery in them, would probably be better. So amazing product market fit and long-term kind of TAM spins your mind. That said, we are automotive-focused. Automotive is a huge market. We have a very excited customer. We have sampled the A's, which, to VW's own press release earlier this year, performed way above expectations, especially on life and capacity. If we're successful this year, we start the B's. We have the commercial agreement in place, like, that is our focus. We are very motivated to make that first licensing agreement successful.
We think it could be a template for others, so that's our focus. To your point, there are applications outside of it. Our choice of the QSE-5, which is approximately a five amp hour cell, is in the wheelhouse of automotive. Their automotive market is bifurcated into small and large cells, and there's religious passion on both sides. We plan to make both cells and not engage in the religious passion, to sell to both, to both churches. That said, the five amp hour cell was a strategic choice because it's in the form factor and layer count that we already shipped the A-samples, so it's the fastest path to market, and it's in the Venn diagram overlap with consumer so we can take those same cells, give them to consumer companies, let them evaluate it.
It's a bit of a free option. Last year, aligned with that, we talked about a breakthrough in pressure, where you don't need pressure for our cells, which we think is important for consumer, if not required, for the applications that require volumetric energy density. And on the back of that, we signed a tech and evaluation agreement with one of the leaders in that space. So there is a market out there, but we are focused on automotive.
Okay. On the automotive side, no secret, the electric vehicle market's been kind of in a bit of a reset of expectations and growth.
Yep.
Still growing, but nowhere near as fast as folks thought just a few years ago. So how has that kind of changed your discussions? Has it concentrated your efforts more with VW? You said it's not exclusive, of course, but... And I'm wondering if you've seen any change in competition as you've seen the supply-demand move from super tightness on EVs to--
To the opposite.
Yeah.
There's, even excluding China, there's more capacity than the world needs.
That's interesting.
Which is interesting.
That's true.
So from us, we are on a, we're in a different market segment and on a wavelength that is different than those macro trends. So I'll kind of explain both. So our goal is low volume B- samples this year, high volume B- samples off Cobra next year. We have a launch customer for the QSE-5. Very small program, but a program nonetheless, we're working towards. And in parallel, you get that gigawatt hour scale collaboration license with VW. We've talked about that being towards the end of the decade for that scale. So whatever the supply imbalance is, pricing, that's fine. That I think will play out over the coming years, hopefully resolve itself by the time we're in market. Even when we're in market, we wouldn't consider ourselves competing against a lithium-ion cell.
We're in a class of performance that is far removed, where we're not competing on cost, we're competing on performance. And the automotive market is large and diverse enough where there's an awful lot of market in that premium space. As a reminder, because we get these performance advantages by eliminating one of the two electrodes as manufactured, once we hit scale factories, once we have mature processes, we actually think we'll be cost-advantaged. So that's really the knockout punch for the technology.
Now, again, going back a few years to maybe the time of the IPO, you would present investors with charts showing your energy density targets at a cell level versus the prevailing EV technology at the time.
Yep.
I mean, from memory, I think it was something, you know, you were approaching maybe a kilowatt hour per kilogram, or, you know, hundreds of watt hours per kilogram, and it would have been maybe at least 2x , maybe 3x , you know, where our competing technology is, maybe closer to 3x.
Yeah that changed a bit as we've seen, like, the industrialization and just kind of continuous improvement, even if it's, if there's asymptotes there? Kinda where would we stand now in terms of your--the arc of where your tech--your line of sight of where the technology energy density, either volumetrically or gravimetrically, and how that would compare now to the 2024 (T+ 2) more, We have this nice chart in our investor deck that shows the frontier of energy density versus power. On the upper edge is a Porsche Taycan cell. I mean, it'd exactly be a Porsche Taycan cell. A little over 600 Wh/L , charges in, say, 17 minutes thereabout. I don't have the chart, so give me brackets everywhere.
Energy and power.
Yep, and then Rivian has the most energy-dense cell on the chart, a little over 700 Wh/L , but it takes about 40 minutes to charge 10%-80%. And then there's some Tesla cells kind of in the middle, which are kind of the, the sweet spot balance. That's gotten a little bit better. You actually see Tesla kind of bouncing around, actually optimizing what we think is for cost without really changing those metrics. But actually, LFP wouldn't even be on the chart.
Interesting.
It actually leaves the chart that we plot because it's so much lower of energy density. Our QSE-5 would be a 800 Wh/L product, 15-minute charge time, making that those parts bigger and increasing the layer count gets you to a 1,000. Those things haven't changed. That continues to be compelling. In terms of T+2 , where the market is focusing, is to put as much silicon as you can into the anode to make the anode more efficient. What we've seen of folks working on that, that's still at performance levels that are south of what our QSE-5 is.
They're working on two challenges, primarily. One is life. Silicon has a lot of expansion to it. When you're cracking those materials, you reform this interface layer. It chews up the active materials in the cell. Second is, some approaches there are very, very expensive. One is to take the graphite anode, you flow silane gas through it. You literally do chemical vapor deposition to create the material. That's very expensive, can be higher performance. It's suitable for consumer, yes, automotive, TBD.
Those would be the two nuts for those technologies to crack. But even if they're successful, two comments: one, we'd be beyond it, and two, the market is so big, you probably wouldn't see each other in the market anyway.
Right. Remind us your target for commercialization and kinda some of the f actors.
There's not too much more beyond what I mentioned there.
Yeah.
Low volume B's in 2024, high volume B's in 2025, and then we'll reserve more about that launch customer for later in the day. We did say towards the end of the decade for the gigawatt-hour scale with-
First revenue, remind us what the-
would be associated with those different, with those different events.
Okay. Be interested in seeing, you know, in our discussions with clients, not just in autos, but other sectors, the AI theme is so pervasive that people are trying to find some overlap, some surface area between, you know, an industrial story or a manufacturing story in AI. So open-ended, how does... You know, where-- what's the AI business case for QuantumScape? And I got a couple of follow-ups.
At a product level, it's not important. As a tool for development and process maturity, it can be. The major applications, there's some standard ones, like, can you give it to your software development, your business system teams, to reduce the time of coding, Microsoft Copilot types of things? Yes, I'm tracking them in my finance function. The standard thing, taking a first pass through things, human approves it.
How does that look?
They're interesting. We would be an adopter once it comes through, like a Microsoft or an SAP. We're more on the classic stuff, have the ERP up, h ave the automation work, great control. So we're in, like, a wait-and-see, let's see it mature, being used. Let's let the auditors figure out.
Not gonna be the make or break for your company.
No.
Other things.
That's the exciting part, where we see the use more of kind of machine learning and some AI is, we have a unique understanding of what's required to make solid-state with lithium metal work. In a manufacturing context, you wanna be able to understand that continuously for your parts that go through.
Mm-hmm.
You tend to use vision for quality control.
Technology.
As soon as you use vision, a picture is not that useful, but a number sure is. To have a computer software identify what you're looking for and put a number to the image, and to do that effectively, we have a partnership with Landing AI.
Mm-hmm.
We have internal machine learning, so we use it a lot on metrology as a part of inline kind of quality control. That's our main kind of machine learning type application, but at the product level, at the end of the day, the chemistry has to robust, it has to be robust, it's got to work, it's got to be compelling, so not so much at the product level.
Aviation?
Very interesting. If you put something in the air that weighs less and is more safe-
Mm-hmm
Wow! So, there's surprisingly a lot of batteries on anything that flies in the air, and you can very quickly monetize that by just how many times you're taking off and landing, what's the weight of that thing? What's the risk to the aircraft and passenger safety, and, like, the suppression systems you need to do with fire. So very interesting. I'd put that in the category of very interesting things that you'd have to jump over a high bar for compelling to stray our focus in the interim, very focused on automotive.
All right. Who's your biggest competition?
Uhh.
Other than yourself.
CATL is who we watch. They set the bar for basically everything in conventional design. They have been surprising with the speed which they've hit both scale and quality, I think, to the whole world. Credit on them. So they are the bar and over which we need to significantly jump over as a new technology. So a lot of credit to them. That's who we watch the most.
But they're more on, like, conventional?
Purely on the conventional, have yet to produce data on solid state lithium metal. Within solid state lithium metal, we don't see anyone near us, yet.
Okay.
We produced this really nice chart of all the prototype data around the planet and plot it on all the dimensions in terms of, like, energy density, and power, and life, and under the conditions. It's a pretty neat chart. Until you show that your chemistry can work any size of prototype, where you can do automotive cycling or automotive capacity retention under reasonable temperature and pressure conditions, and just put a dot there. We did that when we became public. Since we've become public, no other group has. Once somebody puts a dot there, like, okay, then we kinda know where you are, and there's still some work to do, but we haven't seen anybody put a dot there.
Okay. Let's talk about PowerCo and the your agreement with VW. You mentioned it was, it helped on the funding side.
Yep.
It helped on the, you know, open up, the licensing and kind of really, I think, enable a bit more of a capital-efficient model to have you focus on the tech and then work with them more closely. But, you know, any early takeaways? I mean, we're a couple of months in. I know it's still early, but remind us how it impacts the long-term business model.
So, it's, it's structured. There's a royalty, and there's a section on outperformance sharing, so that's the economics to us. There's a royalty prepay, which we have to earn with satisfactory technical progress and agreeing on the form factor. It's non-exclusive, and VW, on their dime, contributes personnel, OpEx, CapEx, to help industrialize whatever target form factor they agree. So impacts on us, that is VW's wheelhouse. That and that they're passionate about is global manufacturing and industrialization. We are a technology company. They have expressed a desire to go upstream with the founding of PowerCo. Really works for both companies. It gives them an opportunity to have strongly differentiated cells in a fiercely competitive kind of commoditized market, and for us, makes it more capital light and lets us play to our strength.
On the earnings call, just shortly after, we talked about extending our cash runway 18 months, depending on what you assume for cash use. Some had talked about $300+ million between CapEx and OpEx. Multiply that simply by a year and a half, you get $500 million worth of non-dilutive capital. Where'd that come from? A, we're no longer investing in a phase one JV. That was $134 million we'd held back. Two, there's a $130 million dollar royalty prepay, which we have to earn, as I mentioned. Three, VW is contributing on their own dime, that skilled personnel and OpEx and CapEx with the industrialization. That has a lot of overlap with what we were planning on spending.
Fourth is kind of a catchall category of we're being leaner and meaner with the plans, part of which is technology-enabled, for example, with this process with Raptor. That's $500 million zip code. Going forward, again, using assumption, $80 million per gigawatt hour for a factory in North America or Europe. If you talk about the size of this deal, up to 80 GWh , that's like over $6 billion of CapEx for that facility under JV structure, or under a JV structure.
You're taking billions of dollars off of our kinda balance sheet and capital needs. It's transformative in both periods, the near term and the long term. For investors, there's an opportunity for really high operating leverage, compelling product, massive market, relatively fixed cost to develop a technology platform. If you can get sufficient licensing volume on that, you get really high margins and the opportunity for to push a lot of product through.
Has it changed? I mean, you said it's not exclusive, but has it changed your continuing discussions with other non-Volkswagen OEMs?
It's been positive. I think that it's fresh credibility of VW's excitement for the technology, and effectively for VW, they're willing to take on more of the work, more of the capital to get it to market.
Mm-hmm.
And given that they're contributing their industrialization know-how a little earlier in the process, I think that also and the strengthening balance sheet, I think, is the validation. The success of getting there are good things, and because it's, we co-own the IP that industrialization IP, it makes us more attractive for that second partner. There's a richer kind of pool of IP that is closer to deployment for them. That I think it makes it very interesting.
And what's the impact, going forward on your CapEx and R&D spend, from, like, before to after?
Well, we were already, we have buildings, we've-- Raptor is installed.
Mm-hmm.
The key equipment for Cobra on the way. We were already on a down, certainly on the CapEx side, and then on the OpEx side, while we are producing more and more parts out of the facility, that's being offset by dramatically more productive processes increasing focus on yield and reliability, so that's a big counterpressure.
So is it not so much that it really reduces the order of magnitude, but it just prevents it from having to inflate as you get closer to commercialization?
I won't speak to the balance of those forces.
Uh-huh.
Exactly. We'll get more into that. That downward force between the VW resources, between the automation, between the efficiency gain and the technology, is a powerful one.
You wanna just update us on the progress of, you know, QSE-5, other tech goals that you have for the year?
Yeah. So we shipped prototypes that showed off the cathode loading and the efficient packaging.
Mm-hmm.
If we're successful before the end of the year, we'll produce our first B- samples, which are five amp hour versions of what we had shipped that incorporate the Raptor films. We talked about tracking to that on the July call, so that remains a very important goal for us. The other remaining technical goals are to get Raptor all the way up to capacity and to land the equipment for Cobra to stay on the path.
So 5 amp hours is the single cell?
Yep, approximately.
And how many layers again? You said.
The A-samples were over 20 layers. We've kind of focusing, which is consistent with that, but we are focusing more on the capacity, which is a more normal battery speak for the cell.
How's the energy degradation after a thousand or two thousand charging cycles?
I can talk to the A-sample data that VW put out in the spring. I recall that those cells did 1,000 cycles with about 3% capacity degradation.
Uh-huh.
That blew their minds. Automotive spec is 20% capacity degradation over 800 cycles. So-
That was a no pressure, or is it?
That was under three atmospheres or less.
Okay.
Now we have taken pressure down over time. We're now using about 0.7 or 0.8 applied atmospheres, which is right in the wheelhouse of what today's products do.
And remind us. I've been getting hit up by investors over the last couple of days about silver, so like silver-carbon approaches as opposed to, like, lithium metal. What? Tell us why-
Um, so-
I think it's like a kilogram of silver per car. So it sounds other than cost, I don't know if there's other.
It sounds expensive. What I can contribute is, I don't hear a lot of discussion amongst our product companies about that appearing on the horizon. Lithium is really a pretty perfect material to use. It's the third element on the periodic table. It's the first solid, which blows your mind because hydrogen, helium, lithium, and everything in that first column, hydrogen above it, has one extra valence electron it wants to give up, which is why it's so reactive. So you have one of the most reactive materials on the periodic table. It's the third one, so it's light, and it's relatively inexpensive. So it and it has a very developed set of materials around it, how you host it, what are the ion conductors, what's the method of making? I don't think there's any credible competitor to it. There's been some sodium used in grid.
Mm-hmm.
I don't see anything in the applications that value high energy and power.
Mm-hmm.
And even if there was a thing, it would take so long, and I'd be surprised if it was silver. It sounds really expensive.
Right. And so, and just for the record, it's for the anode, a silver-carbon. I think Samsung SDI-
Oh!
Samsung SDI.
Oh, okay, for the anode.
The anode, yeah.
Better is nothing. We prefer nothing. As made, we have no anode there.
Right. Okay.
There is no.
Nothing.
It can't get cheaper.
That's real Occam's razor then.
That's real Occam's razor.
If you can solve a problem with nothing.
Yeah. So I would even better. Okay. So it's not down, but yeah. So nothing is better.
Nothing is better. Okay.
Nothing is better.
We're gonna make a T-shirt out of that. Any questions for Kevin from the audience here? Any battery nerds wanna show off your chops?
If the question is too extreme , I will hide behind the fact that I'm a CFO.
I think you wear multiple hats.
It's okay.
You do all the hats.
I'm a hat wearer, but just in defense, I will plead ignorance.
No new OEM discussions to highlight, no.
We have six total agreements, including with VW. We know and talk to just about everybody. We have no shortage of demand. W e need to deliver product.
Okay. We talked about extended cash runway to 2028 because of VW.
Yep.
I think it means you can kinda help focus on the business.
Amen.
Where are your people now? Like, how, where are we in terms of people? 'Cause you had done some retrenchment and now stabilized. I didn't know.
Yep. We're over 800 , very heavily R&D currently, almost all in the San Jose area. We have a small development location in Kyoto, in Japan.
Mm-hmm.
Close to some key material and equipment suppliers, which I think is, strategic. That's where we are.
All right. And look, the stock, it's part of the whole industry here, but the stock's back to, kind of pulled back to around where it was before, the Volkswagen PowerCo deal. So in your discussions with investors, including today, this morning or later on, like, what's the catch? What do they need to see? What's missing, you think, in terms of a proof point for them to get involved?
It's a good question. The investors have focused on the validation through Volkswagen.
Mm-hmm.
I think with stock trading down, like, we aren't really. We tend to trade down with today's news in either automobiles or EVs specifically, but it really doesn't impact our business. So I think that speaks to opportunity. If you buy the long-term thesis, we drink the Kool-Aid, that lithium solid-state lithium metal cells are fundamentally better. We're by far and away the leaders. We are on the brink of shipping the first B- samples. We have a commercialization agreement in place, the rest of the R&D roadmap, great team. Like, that's all still there. Strong balance sheet, way over $900 million of liquidity at the end of the quarter. We've got the cash to go do it. So it's there. I just think it's a more compelling entry point for the stock.
But we'd be looking for people who are looking at those long-term theses as opposed to the near-term trends.
Kevin, just any other final messages or anything we didn't talk about you want to emphasize? What's getting you most excited, kinda, how are you spending your time? Yeah.
That, the licensing deal is pretty strategic. It's a really great move for both us and VW in terms of the value chain. As a CFO, I think a lot about making sure we have the right amount of funding to move forward. So that was transformative and a great fresh piece of validation.
Mm-hmm.
Siva has been fantastic at the helm. The person for the moment to go from prototype to product with focusing on consistent sets of plans. Our meetings are on what is not going well, and specifically, how do we get it back, and how does it impact others, and just the execution focus, getting a rhythm to the business. Like, if we're an innovation business, get the QSE-5 platform up, get the larger up, and then just keep that train going. So that focus on timely execution, cost effectiveness, satisfying our customers. He's been, I think, fantastic at the helm.
Awesome. Well, if you, if you're too shy with the questions, we'll wrap it up here.
Okay.
And you can catch Kevin before he leaves the room. But, Kevin, thanks for spending time with us.
Thank you for having me on.
Appreciate it.