Okay. All right. Okay, good morning, everybody. Welcome to day two of the Morgan Stanley Laguna Conference. I'm absolutely delighted to have, representing QuantumScape, Kevin Hettrich, Chief Financial Officer. Kevin, thanks for coming today.
Thank you, Adam, for having us.
You said you were out in the water yesterday. How was it?
I was. I'm married to a Brazilian, and it's a requirement to enter the ocean whenever you have a chance. It was nice, and I survived.
Yeah. Marrying a Brazilian is entering the ocean or the- Okay.
Both.
Okay.
Both are good for the health and also can be hazardous at times.
Well, my wife's from Madrid, so I'm used to the Latin flavor in our household. So thanks for joining us. I just wanted to give you an opportunity at the top to update investors on some of the key messages that you wanna convey out there.
Perfect. QuantumScape is a company, we've been at it for 10 plus years, trying to develop and commercialize significantly better batteries, specifically solid-state lithium metal batteries. We can talk about that, a little more in detail later on the technology, if that's of interest. And at this point, I don't think there's disagreement that the market for, automotive alone, for significantly better batteries, is measured in the, many hundreds of billions of dollars. And also, I don't think there's disagreement that lithium metal batteries that I mentioned, can offer compelling performance benefits, specifically in terms of charge time, and energy density, and safety.
And for us, we became a public company, about three years ago, not quite, with a technology demonstration showing performance levels in automotive that at the time had not been shown before, and still, to this day, have not yet been matched. And as of last year, the end of last year, we shipped our first A0 samples, which formally started product qualification with multiple OEMs. So it's been a great couple of years of progress. And as we mentioned on our last shareholder letter, we've announced our first product, the QSE-5, and we're already working with a prospective launch customer for that product.
So to go from massive market opportunity with a very difficult, challenging technologies to develop and commercialize, to be in qualification with line of sight to finishing the product is a very exciting moment for the company.
Your launch customer-
Yep
is that a consumer electronics customer or auto?
Automotive.
Okay, fantastic. And when do you think first revenue will be?
First revenue is typically recognized at the end of the B sample stage.
Oh, okay.
So on customer acceptance, we're targeting high-volume B samples in 2025, so.
Okay. These would be small amounts of revenue?
Small amounts of revenue. It's, it's more of a milestone than it is... it's more of a binary that you have that level of maturity than anything that really moves the needle.
More commercially, you know, installed revenue, remind us what that, that timeline is and whether that
We've talked about it being after. I think we'll provide more guidance when there's more to share about that first program.
All right. So you're doing, like, really hard applied science here, right? Hard tech science.
That's right.
You know, one of the well-known bear cases is that, you know, you're doing, you know, samples for, you know, four layers or a number of layers.
Yep.
When you scale that up, to scale that up to... How many layers will you—
Uh, 24.
When you get to 24, if any one of those layers fails, the whole battery fails.
Right.
And there's not the metrology there to even measure, and your, your science is moving ahead of the metrology, and you're gonna need AI to figure this out. And, hey, I, I will ask you the AI question, too.
Yep, yep
by the way. But kind of what's your response to that, you know, the technological mountain that you're climbing?
So, that's a... It, it's a good question. The products have to work and be robust and-
By the way, Kevin comes from the tech side, by the way, unusual career path. I don't know if you want to describe that, your-
I have done a number of things. I've been at QuantumScape 12 years.
Okay.
I've worn a number of hats, including product management, operations management, finance, now a little bit of IT-
Mm-hmm
because of the need to launch an ERP system, becoming a public company, so.
Sorry to interrupt your flow.
That's all right.
But yeah. Thanks.
No. So you were asking me about hard tech?
Yeah.
So, yes, it is a hard problem. That's almost the nature of... You don't have multi-hundred billion dollar opportunities without some level of difficulty kind of going into it. And the way we approached that was we said: Okay, solving this problem, first, the material has to exist. We didn't even know if the material existed when we started the company. You need to make it with earth-abundant materials, and you need to make it with continuous flow equipment, that that equipment or similar equipment exists in other industries. 'Cause if you don't have those things, you don't even have a shot. And even once you have those things, there's still work to do.
So if you can make earth-abundant materials off of continuous flow equipment, you then have to identify the process conditions why if you make it, it works, and it's reliable, and it has sufficient yield. And that is the work of the process development behind the scenes. So you get... We've been giving investors a view into that when we talk about film starts. This year, we... One of our four goals is to demonstrate what we call the Raptor process.
Right.
It's the... It's a very exciting, continuous flow process that using similar equipment, we used last year, we modified it, and we're able to triple the outcome, the, the output rather. And with, learnings from that tool plus some prototype tools, we- the next stage of that is the, the Cobra tool, which would support the high volume, B samples in 2025, and we're very excited about that process. But, full, full circle to your point, it's all about what are the process conditions you need to hit, the upper, the lower limits? How do you detect it? How do you get the feedback into the tool? And that's just, that's kind of classic manufacturing that is done in batteries and semiconductors, in disk drives.
We, we just hired, Dr. Siva Sivaram, president of Western Digital, to lead our technology and manufacturing front. And that's, that's just- That's a skill set that added to the bench, where a very high- those, those companies make millions of devices, driving billions of dollars of revenue per year. Very applicable skill set to our, to our, our scale-up.
I'm tempted to ask you, what's a harder problem, the cell itself or the manufacturing? But I think it's the two affect each other, so.
The two are intimately woven together.
... And so anything that you'd, like, it's top of mind in terms of what you're, what you're dealing with now?
So, one, people on that, it's. We have this great chart of the competitive landscape. We plot everybody's lithium metal performance globally around the world.
Mm-hmm
on a chart that has a lot of variables. There's charge time, there's energy density, there's cycle life, there's the conditions, it's all in one chart. And you can see how little the competitive landscape has moved, precisely because of that challenge.
Mm-hmm
that, if you think about it, you are making a solid-state device that needs to be less than the thickness of a human hair, stable to lithium metal. It has to outperform in terms of interfacial resistance by a factor of 20 what we have, almost free to manufacture. So it's a wicked hard, wicked hard problem. And in just making it, even when it's done, ignore all the 300+ patents, just figuring out how to reverse engineer it is almost an intractable problem, 'cause you have multiple different ways... You have a, it's a multi-step problem, multiple different options for each step, multiple parameters within each tool. There are consumables that aren't present in the final product, and what material you use changes how you'd optimize all those other things.
Mm.
Often to get another shot on goal, to say, "I wanna explore this process," it can be four or five quarters to even just get that data point.
Sure.
Hiring new members of the team, it combines kind of batteries with ceramics generally. So you have kind of core competencies that you don't naturally find in companies. So that's what we think makes it such a hard problem, I think, for many companies to go after.
On top of that, the problem you have as a CFO is to try to not run them on a run-
Yes
not run out of money in the process.
That is.
And you have a good, strong balance sheet.
Yes.
You have that, that buffer.
We do.
On our numbers, it's a good two to three years-
Yep
before you would get to a level... I don't know if you agree.
Yeah
or disagree with that kind of thing. You know, it's-
Yeah.
It, well, yeah.
I can, I can give a little color on it. So, ending the last conference call, Q2, we had $900 million in liquidity. Pro forma for the recent capital raise, that boosts up to $1.2 billion. That's sufficient to go through all the milestones that I just mentioned, including the high-volume B samples at the end of 2025, which that's finished products off manufacturing-intent processes, recognizable as revenue on acceptance.
Mm-hmm.
you go into 26, that just completely changes the nature of our funding requirements. We're going forward, we have the opportunity to say, "Okay, that's all behind us. I wanna raise X funds for Y customer program, and under Z business model.
Right.
And then there's all sorts of really wonderful non-dilutive opportunities out there to keep that as lean and mean as possible.
So, if there is further capital needs, it'll be tied to, like, offtake agreements and things like this, where you have revenue back.
There's now the opportunity to do that, because the manufacturing intent processes-
Mm-hmm
are being shown, the product is done.
Mm-hmm
you, I would expect announcements if we keep making progress over the first customer and subsequent customers.
Okay. Yeah, the time value of the option.
Yep.
How many people right now approximately?
About 850.
Where would that have been a year ago?
A year ago, maybe in the mid-700s-
Okay
Roughly. If you don't, don't quote me on that. So it's been... We've, that's a pretty healthy team to both finish development-
Eighteen
to develop the processes. There's some shift between the development team to the manufacturing team, and you have increasing levels of automation happening in the background that helps kind of slow that growth.
Any other cost control you're doing to kind of control the ramping? Again, you post cap raise provides more opportunities for you, but-
All sorts of things.
Mm.
So it's, that's one of the... Like, philosophically, this is a problem that it's so important, if you pull it off, it begs for a strong balance sheet. There's a number of things that we like. We don't wanna be knocked off course with this big of a problem by something we can't control, like a macroeconomic environment-
Mm-hmm
Type of opportunity. So start with a strong balance sheet, look for opportunities to make it stronger, then once you have it, have the discipline to truly have it extend the runway and only selectively invest.
Mm-hmm.
So once we've done that, we have initiatives across the company to look for areas to be a little leaner and meaner. At the start of the year, we had a small reduction in force. We have looked into all sorts of cost saving measures, everything as mundane as "Let's look at the snack offerings in the canteen," to, in the post SVB world, we've moved to a pair of banks, and we've gotten better yields out of letters of credit. We're looking at reducing, like, change orders on tools. That's sizable, and we've been able to reinvest back into the business while staying within our OpEx guidance.
All right, now finish the sentence for me.
Yeah.
Artificial intelligence helps QuantumScape by?
Not at all.
That's refreshing.
Well, so artificial intelligence, like, we use very advanced statistics to do process control, and there are, like, learning algorithms to help do better prediction, but it's chemistry. It needs to be robust. It needs to work. We showed in our battery showcase in 2020, that the material well-made at a component, it's capable of, like, 2.5-minute type charge times-
Mm-hmm
which is obscenely fast, and other things will limit you in the cell. That's a factor of six margin relative to what we need, and we've made the material better since then. So the chemistry needs to work and be robust. You, you shouldn't have a gimmick around to, like, detect things-
Thank you.
It's not important.
Thank you for that-
Yeah
dose of realism.
Yep.
That's good. So one of the things I really respect about your company and the mission is, you know, there's just a scarcity of U.S.,
Yes
domiciled tech in these areas. It's just, you know, so much of that IP is just completely dominated-
Yep
overwhelmingly by outside this country, which for obvious reasons, you know, presents a problem.
Yep.
So, tell us how the IRA or some of the DOE envelopes-
Yep
Loan Program Office kind of enters into opportunities or maybe, maybe not opportunities, 'cause it might-
Yeah
fund a lot of other bullshit topics along, that compete against you.
Which it's a. If the objective is to develop a closed chain, North American, like, loop for making cells and recycling them, vertically, it should have the intended effect quite strongly. There are two parts. I think, I believe it's 48C. There's an investment tax credit, which you can then turn into cash. That's probably most appropriate for smaller scale facilities that are appropriate for so folks doing, like, pilot lines. You can get a third of the CapEx back in terms of a credit or cash. And then for more mature facilities, Section 45X, you can get $35 a kWh.
Just for the folks in the room, the selling price of the cell is more in the magnitude of $100/kWh, so that's a 35% zip code support. So that's a massive thumb on the scale to shift battery production to the United States, and it, it's having the intended effect. So I think that's a healthy thing that will be good for the domestic supply chain.
How's the VW relationship going?
It's good. It's at multiple levels. We have two members on the board. We have a joint venture.
Mm-hmm.
-together. They have many iconic brands. If you... New technology tends to be commercialized with performance-type brands-
Mm-hmm.
And then within VW, there's a number. You have Lamborghini and Porsche and Audi and Ducati, and all sorts of fun, fun groups of engineers to work with. So I think it's in a fantastic shape.
Remind us, how many OEMs? I'm gonna get the number wrong. I'm thinking it's eight.
Six.
Okay.
Six total.
Mm-hmm.
Representing pretty good diversity. There are two other kind of top, top OEMs in terms of volume in there. There's a pure-play EV in there, and then there's two kind of global luxury performance brands in there.
Anything, the China EV community represented in that list, or?
We haven't given... We, we've said that it's geographically diverse.
Mm-hmm.
But we haven't given any more color to the composition.
Got it, Kevin. So I asked Jagdeep this question a year ago, which was, you know, you start out with a very specific hard problem-
Yep
... to solve, and then along the way, you know, you, you end up learning what works, what doesn't, and you develop a great team of 850 people. How many of those, by the way, are in manufacturing versus, let's say, the chemistry side?
Like, it's maybe 50% manufacturing, I'd say.
Okay. Well, you, you know, as you tackle this problem, it might open up other doors-
Right.
and that it could potentially change the business model, open up
That's right
... new markets. Maybe it's a licensing thing-
Yep
or more asset light
Yep
And you had to kind of do the tech for... So what are those kinds of pivots? Because I asked Jagdeep, "Would, would you consider, you know, maybe someone else values your tech-
Yeah
and can scale it, and that you had to do it yourself and do the hard-
Yep
for a number of years, decades plus?
Yeah.
We're, you know, how do you-
So, absolutely. On the last, there's kind of two questions. There's-
Mm-hmm.
I'll split it into there's kind of a product strategy, and then there's also a business model. If you have a significantly higher energy density, faster charging, safer, longer-lived energy storage device, the product market fit options are many across some large markets. We've tried to solve that piece of it-
Mm-hmm
—in our kind of QSE-5 product. First is we want to get it to market as quickly as we can. What better way than commercializing the layer count and the XY dimensions of what we've already shipped—
Mm-hmm
at the end of last year?
Mm-hmm.
It's about a 5 amp hour cell that's uniquely in the overlap between the consumer and the automotive space. We are automotive focused. The launch customer, the prospective launch customer is automotive. Interestingly, the grid, there are grid players who actually use automotive cells. So you have a single product direction where we can engage, like, the leaders of three different industries on. So that's how we've, that's how we've tried to keep the focus on the development front. On the business model side, until the point where we have the, the equipment specifications, the process specifications, nailed down, we won't be in a position to teach it for, like, a licensing-
Mm-hmm
upside opportunity. So until the point of scale, you should assume either a wholly owned facility or a joint venture. But then in the fullness of time, we have received... We mentioned last earnings call, we've received inbound interest in all of those different material options, and we've said that we see ourselves pursuing all of those different options, both to engage a broader swath of the industry.
Mm-hmm
And because it's such a big space, if we can line up incentives, protect the IP, and get a fair return, the licensing is fantastic.
Mm-hmm.
Because it's such a big opportunity across multiple models that we see as a real player in the mix.
Got it. Questions for Kevin from the audience? Got a mic back there, too, or two. Just speak up. You're too far.
... So the question for the folks in the room is, what's how does, how is what you're working on different in terms of what you had some kind of different cathode materials, NMC, NCA, lithium iron phosphate, as well as kind of form factors in terms of prismatic and cylindrical? So our... I'll start with the form factor first. We're a little—we're you can think of it as like a hybrid between kind of a prismatic metal can cell and a pouch cell. There's photos on our website and in our shareholder letter. It looks like a pouch cell with kind of a frame around it, and we have a. During cycling, as made, the separator is right on the metal current collector.
So, there's nothing there as made. So, traditional battery factories would make two electrodes. We literally don't manufacture an electrode. So this is quite a tangent, but talking about national security, which I forgot to answer.
Oh, yeah.
Uh-
Are those done here?
100% of anode... So the-
Yeah
... anode is primarily graphite. That's 100% imported, 65% or more from China. We take... Like, you literally don't, you don't manufacture it. That, that goes away. So if you want to think of a, of a threat to cell supply, it's actually on the anode side. It's also the most dirty thing to recycle. But anyway, so that, that goes away. When you plate out lithium metal, it actually makes, it makes the stack a little, a little taller. So if you, if you look at that, the reason for the picture frame is, in a discharged state, there's a, about a 1-2 mm depression, say, and then a charge state, it actually is flush.
So that's, I think, a very elegant, low-cost way to handle the volume expansion, and remains in a prismatic form. So that's to the cell side. On the cathode side, we're agnostic to the choice of material. If you want to optimize for energy density, you use like a nickel-rich NMC. If you want to go more towards the low-cost end of the spectrum, you'd use like a lithium iron phosphate, and that would just be a conversation with the OEM about what they're trying to optimize for. And then you got a competitive differentiation kind of part of it, what's different? We think of there's two camps: there's lithium ion, and there's lithium metal. But then lithium...
Relative to lithium-ion, because we don't manufacture an anode, we think we have a path to lower cost. We eliminate materials with higher energy density. The distance for that lithium-ion to travel is shorter, and you don't have a kind of, you don't have to find a space in the anode to go into, so you reduce the charge times. We eliminate two to three organic materials along the way, that improves safety. So we don't exist yet, so that's our main thing, we need to develop it. And then relative to lithium metal, we're the only group that's ever shown what we think entitlement to automotive performance is. We're waiting for folks.
We plot everybody's performance, but until folks show their chemistry at even some small scale that works, what we define as charge and discharge in an hour each, do it 800+ cycles, 80% capacity retention, don't cheat by using really high temperatures and pressures. And if you can do that, we think you have a shot at automotive product. No one else has other than us. So we don't see anyone on the horizon, at least so far.
Any difference in expansion, properties between LFP or nickel-based?
No, it's you might have a... Not really. You may have more layers in a in an LFP-type cell, just because there's probably practical coating thicknesses you can have-
Mm-hmm.
And you'd need more layers around, but nothing notable. You'd see about that same. It would be a function of the—it would be correlated with the capacity of the cell.
You have been testing LFP?
We have been testing LFP.
Okay. More questions for Kevin? Please.
Yep. That was yep. Great, great question. So there was two questions. Compare the difficulty between a unit cell and a 24-layer cell. Unit cell's got two layers in it. And the second question is just talk about pressure. Is there something needed at the pack level? So on the unit cell, those unit cells that we ship are literally the components of the 24-layer cell. So you'd assemble 12 of them together. That's what we did for the A0s. For remaining work for the rest of the year, we want to make that packaging more efficient. So we've shown the data behind and then sampled the unit cells for the higher cathode loading.
That's a cathode achievement, but also because we have doubled the cathode loading, we're sending twice as much current through the separator. So it's actually signals that we're making the separator better and more reliable in parallel. The remaining work that we need to, we wanna demonstrate that Raptor process, and we actually want to make that packaging more efficient. So, stay tuned for further developments on just making that more efficient over time, thinking about, like, the margins of things and the thickness of inactive components. On the pressure, so these are our end ambition is to have zero pressure cells. We think that's required in consumer electronics. We're the first ones ever to show lithium metal, these type of power rates, ever working in a zero pressure environment.
That's one of a long list of things that were thought to be impossible that the company has done. I can go through... There's quite a list. So that we think opens up consumer electronics. That led to sampling the single layer cells in the space. Those have done, I think, well. So in the automotive context, we've been testing at 30, kind of 30 psi... Sorry, three atmospheres or less of pressure, and the trend has been to take that down. When you're at that level of pressure, you're in the zone of what automotive folks do at the module level anyway. There'll be some compression from the two sides, but it's in the range of what lithium ion already gets today.
The reason the cells like that is you help keep the layers of the cells in good contact with each other and promote interfacial resistance. But our plan is to be at worst in the zone of what they're used to, and at best be able to do zero.
Kevin, me taking that question-
Yeah
... but adding a time horizon to it, how are you tracking on meeting your, your, 2023 goals? Anything you want to add?
So, just to reiterate what we said on the last call. So the cathode one is done. For that Raptor line, which is really exciting, we did factory acceptance, we installed the equipment, we did site acceptance, so we just need to do the process development and start production-
Mm-hmm
... off of it and baseline it. And then on the remaining two, we're making progress on reliability because we ship those unit cells with kind of twice the performance on the cathode side that I mentioned. And then packaging, we mentioned we're tracking to to be successful, we'd show off what we've been up to.
Just to confirm, how many layers are in the cells that you're shipping?
For the unit cells was two.
Mm-hmm.
For that first QSE-5 product would have 12 of those unit cells for 24 layers.
The B samples?
Same thing.
Okay.
So the QSE-5 is a roughly 5 Ah product featuring 24 layers.
Okay. And, milestones that you'd want us to think about, that we can kind of measure progress as we think towards the, you know, 2024 goals of producing these samples?
Those, the same four ones that we set out at 23, that literally bridge from those first A0s, that set up the B sample stage, is the higher mass loading cathodes, which is done to demonstrate the Raptor process. The equipment's installed, so we need to do the process development. Improve the packaging efficiency of the cells-
Mm-hmm.
and then continue to improve the reliability as we move between A to B, B to commercialization stages.
Any more questions for Kevin? Please. B samples coming up. Yeah. But some, not just for Yeah. Electronics sector. Yeah, with the, B samples coming out, you mentioned that... I thought you said something that could be-
Yeah
for commercial electronics. Tell us about that.
So that's the form factor about the size of a deck of cards and in that capacity range of 5 amp hours, you're in the zip code of what, like, a smartphone would be in, and a lot of consumer devices have about that capacity. So it's something you can sample to. It would be a bit like a needle in a haystack if that particular form literally slot into a consumer device. Your consumer partner to actually, for a design win, would request some small changes 'cause they're so sensitive to volumetric energy density that they work very, very closely on the exact dimensions, and their product cycle is so tight that they kind of plug you in and go. But that about 5 amp hour size, we see as being relevant to all three industries.
The automotive space is kind of segmented into two. There's small form factors and larger form factors. Our next product would be kind of larger XY dimension cells that would help that part of the segment. If you do that, you naturally lift up energy density, another like 20%.
Good question. Yeah. Any more? We got a few minutes left in the audience. Kevin, any final thoughts on either the commercial side, the tech side, or the financial strength that you've recently bolstered for us before we-
No, I think we talked about it. It's a good problem to have.
Mm-hmm.
The team is to have that amount, if we're successful in development, there are so many different opportunities to commercialize-
Mm-hmm
... and we're seeing so much excitement from the partners. We have the capital and the balance sheet to fund it. We've got the shot at doing exactly-
Mm-hmm
... what we need to do. We have line of sight to that first product already working with the launch customer.
Mm-hmm.
It's a really nice moment, and we look forward to sharing some positive developments in the quarter.
You know, stocks reacted pretty favorably over the last few months with the move-
Yep
... you've made to give yourself more time. I mean, my message to a lot of companies in a similar position to you is just stay in business.
Yep.
Stay in business.
That's right.
Time, time is value. Who knows where it'll end up, but each year, you can keep those 850 people working on this really hard problem, you know-
Yeah
... that's where the value can be created.
It was something like in the zip code of 8% dilution to bring in $300 million-
That-
kind of gross proceeds, that
You can do that all day long.
Then-
All funds. Sorry.
Well, we're not playing a game of a couple dollars.
Yeah.
We're playing a game of, like, many tens of dollars.
Yeah.
So it's just... And we've got progress on so many other fronts that to strengthen up the balance sheet even further.
Yeah.
But anyways-
Great
... that's a good summary.
Kevin, thanks so much for joining us.
Adam, thank you.
Take care.
Thank you.
Got it. Thanks.