FREYR Battery full year and Q4 2021 earnings call. To ask a question during the Q&A, press zero one. For the first part of the call, all participants will be in listen-only mode. Afterwards, there'll be a question and answer session. I'll now hand the floor to Jeffrey Spittel, Vice President of Investor Relations. Please begin.
Good morning, and welcome everyone to FREYR Battery's fourth quarter and full year 2021 earnings conference call. With me today on the call are Tom Einar Jensen, our Chief Executive Officer, Jan Arve Haugan, our Chief Operating Officer, and Steffen Føreid, our Chief Financial Officer. During today's call, management may make statements related to our business that are forward-looking under federal securities laws and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations.
For a discussion of material risks and other important factors that could affect our actual results, please refer to our filings with the Securities and Exchange Commission, which are available on the investor relations section of our website and the earnings press release issued earlier today. Additional information will be made available on our annual report on Form 10-K for the fiscal year 2021 and other reports that we may file with the SEC. With that, I'll turn the call over to Tom.
Good morning, good afternoon, and good evening, everyone. Thank you, Jeff, for this kind introduction. Welcome, everyone, to this third quarterly reporting for FREYR, the fourth quarter report for 2021 and full year results for 2021. Today, we will run through an update on the business, our strategic roadmap and priorities, how we are progressing in establishing localized supply chains, how our operations are now turning into gear. We will talk about the market opportunity, which we feel is and see is ever expanding. We're making strong commercial progress across a number of customer verticals. We're also making good progress on financing the expansion of our clean battery solutions plants, and we'll focus on the near-term priorities and have a question and answer session. Next slide, please. We are now well advanced in building FREYR's operational foundation.
The customer qualification plant, our first gigascale facility, is on track for starting up production later this year. The gigafactory development, which will rest upon the development we have in the CQP, the customer qualification plant. We are now pleased to announce that we're combining gigafactory one and two into one larger facility with eight production lines and an upsized nameplate capacity of 18 GWh. On a like-for-like basis compared to the similar chemistry and battery solutions we used in the business plan presented in February, this represents a 40% increase in nameplate capacity relative to earlier. This increase in capacity will allow us to increase the capital and operational efficiency of the plant. We will be implementing a phased investment decision on the production lines to allow us to move as quickly as possible forward.
We anticipate to start and ramp up production during the first half of 2024. When we are ready to make the final investment decision, which we aim to do later this half of the year, we will be providing updated CapEx estimates and plant development timelines to our investors. We're well underway, however, in making progress in our gigafactory site in Mo i Rana. We've already started groundbreaking, and the board of directors just recently approved additional capital investment in groundworks and early works commitments to ensure that we can move as quickly forward as possible on this 18 GWh gigafactory. Next, please. We started up the company, as mentioned to most of you many times, in 2018. Since then, we've made strong progress across the board.
We have entered into a definitive technology and licensing agreement with 24M, a big part of the company's development to date. That allowed us to go public on the New York Stock Exchange, mid-2021. During 2022, we'll be making significant additional progress points moving forward. Last year, we entered into a joint venture with Koch Strategic Platforms, also the largest investor in our PIPE transaction. We also invested in 24M Technologies, both as the first licensee in Europe and also as a combined licensee with Koch Strategic Platforms for our joint venture in the U.S. We're now targeting more than 200 GWh of combined conditional offtake agreements to be entered into during 2022.
We will start up our first giga scale facility, an actual industrial scale production line in the Customer Qualification Plant, which will come operational later this year. In the next couple of years, we will focus on starting up gigafactory one and two. We will start up a modularized and gradual acceleration of the production lines in that combined gigafactory, which, as previously mentioned, will be an 18 GWh facility. We will also invest in a localized and decarbonized supply chain. Coming back to that, the progress that we're making across the board here, on supply chain in general.
In addition, we're targeting downstream participation to essentially increase our ability to reach more customers and also to optimize the value that we generate for our investors. Moving beyond the next couple of years, we will also be investing in additional battery cell manufacturing facilities, both in Norway, Finland, and in the U.S. We will also take select positions both up, mid, and downstream through joint venture and other initiatives to ensure that we get in as broad participation in the value chain as possible, reaching 43 GWh, as previously stated, by 2025 in installed capacity. By 2028, we still aspire to have more than 83 GWh of capacity established, making us a large global low cost and low emission player in the industry.
We previously said that we have an ambition of 100-150 GWh in the 2020-2030 timeframe, and we remain very optimistic that we're on track to achieve that ambition. We're now focusing on execution, and I'm really excited today to introduce to you our Chief Operating Officer and also President and Managing Director of our activities in Norway, Mr. Jan Arve Haugan. He will be taking you through the status on our operations, and I will bring him into these meetings on a quarterly basis to basically provide you with increasing and in-depth updates on the very strong execution-oriented progress that we're making across the board. To give you a couple of highlights on how we are progressing against our giga scale commercialization, let me focus on a couple of things.
First, we are progressing multiple different tracks on the financing arena. We're combining ECAs and multilaterals, grants, strategic partners, and investors to ensure that we can lower the cost of capital. We are supporting these funding tracks, or we're generating these funding tracks in order for us to proceed to unlock the gigafactory developments, complementing the equity that we've raised to date. We have several potential solutions emerging for the combined gigafactory one and two in Mo i Rana, and there is broad interest in the capital markets to participate in enabling Norway's first large scale gigafactory development. On the commercial front, we've continued to make very strong progress. We announced recently our first two major offtake agreements with global industrial players that cover more than 50 GWh of cumulative capacity.
We are continuing additional discussions beyond this with multiple potential customers in the storage space, commercial mobility, as well as the electric vehicle sector. We have line of sight to an additional 150 GWh or more of cell demand with the next potential customers in the pipeline, bringing us to more than 200 GWh of combined offtake in the early stages of our commercialization. We will now be focusing on converting the initial offtake awards to firm sales contracts with value-accretive terms, and we will continue to highlight and high-grade the progress on the commercial front on a continuous basis. On the supply chain, we're working to secure additional raw material providers, as well as evaluating and capitalizing the localized supply chain partnerships that is core to FREYR's strategy.
Decarbonizing the core inputs into battery cell manufacturing through a localization of the same in areas with low cost renewable energy is a core component in both driving down the cost of the battery cell production itself, but also to reduce the CO2 footprint along the life cycle. We are in process to firm up potential suppliers with committed volumes and specific tier pricing terms and conditions. As previously mentioned, we have signed framework agreements for nine out of 13 key raw material inputs for the customer qualification plant and the combined gigafactories one and two. The remaining four is well advanced and will be signed in short order.
We're pursuing a joint venture to develop the first giga scale LFP cathode plant in the Nordic region, and we're super excited about that progress, which obviously constitutes a very large part of the cost structure of battery cells.
Let me now hand it over to Jan Arve Haugan, and let me introduce him briefly. Jan Arve is an industry veteran in the Norwegian oil and gas and aluminum business, which we're very excited to have on board, and who's been fundamental in driving the operational performance and preparedness of the company to date. Jan Arve, please take over on the next couple of slides to give the exciting insight into how we're progressing on the operational front. Jan Arve?
Thanks a lot, Tom. Good morning to everyone. Today I'm gonna give you an update on our raw material supply, and then also follow up with a brief on where we are on the customer qualification plan, as well as our front-end engineering and current definition of the gigafactory development. First, the supply of raw materials. As everyone is aware of, the sourcing of raw materials to the battery industry is a core competence and certainly equally important to building the plant and building the operational team. I want you to take note of the fact that our technology license partner, 24M out of Cambridge, Boston, U.S., has pre-approved the key raw material suppliers as part of the license agreement.
In FREYR, we have already now converted some of these, and as Tom said, nine out of 13 into framework agreements that we can continue to work on. As we also said, the progress of the four remaining are well underway, ready to be converted. As a direct follow-up of the commercial contracts on sales, we will now build the bill of materials for the production program. Establish the formal supply contracts to meet the buildup of our production. We have today confirmed and secured volumes to be used during the factory acceptance test and the first production from our full-scale production line in the Customer Qualification Plant.
As part of our strategy to facilitate and develop localized and decarbonized upstream supply systems, we have also agreed with to work with companies like Glencore and Elkem for different business structures that can be sourcing the materials of the Nordic region. We maintain our clear ambition to build the long-term value chain for battery production that will reduce the carbon footprint by 80% compared to current conventional technology. As illustrated by the calculation here today, we indicate that this production system will have a commercial upside under the assumption that carbon tariffs are continuing into the predicted levels of, say, $100 per ton of CO2 equivalent. Let us go over to the operational start status plants in Norway.
The Customer Qualification Plant is well underway in construction in the site in Mo i Rana, following the baseline schedule that we agreed at the final investment that was done some few days after the listing in the U.S. in July last year. We have had no direct consequences of the pandemic situation, and we are very careful in the construction management not to expose ourselves to any crew situations where the COVID-19 can give us problems. Currently, the manufacturing or production line equipment is according to the schedule. A few design changes based on experience from 24M and other production partners are now currently being implemented.
As of now, we are planning an extensive factory acceptance testing at the various manufacturing locations, and we are very committed to do a solid checkout of the production equipment before we are accepting release for site delivery. Further on, the site integration and commissioning, as well as manufacturing readiness, is now being planned by the operational team. In line with our strategy and customer acquisition, we are also executing the front-end engineering, design, and procurement process for the combined gigafactory one and one, and two to be located in Mo i Rana. As Tom said, the groundworks have now been started for the foundations for the 70,000 sq m of building will be done later this spring as part of the pre-committed preparations.
We are in good progress of designing the plant that can facilitate eight production lines, and that will give a nameplate capacity that is 40% higher than we previously indicated. Noting that, as Tom said, there are different chemistries in the cell design. Finally, as part of the operational preparedness, we include the documentation and the structure for a holistic financing structure in our production system here in Norway. As you see on the picture, our CEO was hosting local and national politicians at the construction site some three weeks ago. Thanks, and then over to Tom to address more about the business update and outlook.
Thank you very much, Jan Arve. Let's move to the next slide, please. Let's now turn to the market side of things. As I've been alluding to many, many times before, we see a continuously growing and increasing market segment. In fact, we have now made an updated study together with Rystad Energy to look at what battery cell demand is required to meet various macroeconomic ambitions keeping in line with climate ambitions that have been set by the world leaders. If you assume a 1.6 degree target, and you measure that up against a realistic assessment of all announced production capacity additions into the market to date, we see that there is a very strong market shortage on the horizon.
This does not mean that we necessarily are expecting a 9 TWh market annually by 2030. It is more a reflection of where the market need to be if we're going to be in line with Paris Agreement and the like. If that is indeed the case, as you see broken down on this slide, and we look at all announced capacity and put a realistic rollout assumption on all of these capacities, we actually are in a very strong market shortage environment. In fact, today it is already experiencing this, as also alluded to previously to our investors, in many of our customer dialogues. A lot of the existing battery cell manufacturing capacity and supply is coming from China and Asia in general.
An increasing number of customers are now being put on hold or even canceled in terms of battery deliveries. The case for localized decarbonized battery cell manufacturing capacity, both in Europe and the United States, the two core focus areas of FREYR, is definitely a very strong value proposition in the medium to long term. We do see strong opportunity, not only in the electric vehicle space, but also in the energy storage and other applications, including commercial vehicles. The 24M technology is particularly suited for so-called low C-rate applications or thicker electrode applications.
Both for passenger vehicles, commercial vehicles, and a large part of the energy storage and electric vehicles market segment, we do see an opportunity to deploy large volumes of 24M's technology, again, produced based on a localized and decarbonized value chain providing world-leading and cost competitive supply to an ever-increasing market situation. Two of these initial commercial wins that we are working on has already been announced. We were very pleased to announce the relationship with Honeywell, which is one of the leading U.S.-based companies in the energy transition. We are going to provide an initial 19 GWh of cumulative capacity to Honeywell during the 2024/2028 timeframe.
Honeywell can also double these volumes under the contract we have with them, and we are now well advanced in detailing out the detailed terms and conditions of a firm sales agreement, which we'll announce back to the market in short order. The other main win that we have made so far is with a industrial player in the energy storage systems space and a very large OEM provider of different input factors into a broad variety of industries. Here we are intending to establish a joint venture downstream from battery cell manufacturing production, and the volume that has been indicated to be put into this joint venture is more than 50% of our projected production in Mo i Rana.
That, coupled with our Honeywell agreement, means that we have for the next five years or the initial five years of production of that facility, I should say, already this ability to more than 70% of the projected production from that combined gigafactory one and two development. That is, in essence, already a strong signal that we're starting to get sold out on capacity from our first commercial facility. If we then move to the next slide, I can take you through some of the additional progress points that we're making on the commercial front. We're applying a funnel-based structure to our commercialization and our customer acquisition process. This is a rigorous multi-step approach to basically ensure that we can optimize for value in all the batteries that we produce in an increasing production footprint around the world.
We have more than 100 combined discussions ongoing of different maturities, and the two initial agreements that I mentioned is now well advanced towards firm sales agreements with specific pricing and volume commitments attached to it, enabling bankable propositions for our first gigafactory one and two development. In addition to this, we now have five conditional offtake agreements in advanced stages of negotiation. These represent income in combination significantly above 150 GWh in potential demand in the same timeframe. Converting these to conditional offtake agreements and signed sales agreements with terms and conditions will unlock potential additional investment decisions in additional gigafactories, both in Norway, the United States, and Finland. We are then maturing a number of different other customer segments and specific customer accounts across all market verticals.
We have more than terawatt hour unmet demand in all of our ongoing customer discussions, and this will, of course, be an important contribution to keep expanding a modularized and highly effective production footprint built up around the 24M technology and a localized and decarbonized supply chain with select participation downstream to capture additional value across the market verticals. We're leveraging these very strong market conditions and our initial commercial success to optimize the value. We are very committed to providing deep shareholder returns in all of our efforts, and we're very pleased to see that there is very strong traction and interest in the battery solutions that FREYR is bringing to the market. Next, please. Let me now hand it over to our Chief Financial Officer, Mr.
Steffen Føreid, to take you through the basics of our financial progress. Steffen?
Yeah. Thank you, Tom, and good day, everyone. It's a pleasure to be here today. At the end of the fourth quarter, FREYR had $566 million in cash and cash equivalents on its balance sheet. The movement in cash position during the quarter is mainly explained by investment in 24M, payment of license fees and capital expenditures relating to the customer qualification plant. In addition, other cash outflows from operating activities were $13 million in the quarter, mainly explained by operating expenses and working capital movements. Short term, our financial priority is to minimize the use of cash while we build the organization and secure offtake. Medium term, our financial priority is to secure funding for development of gigafactory one and two.
The plan is to raise financing among project finance banks and export credit agencies, in combination with funding from strategic partners and other sources.
We have made good progress in securing support from key ECAs and multilaterals, and are working at bringing in more ECAs as we firm up our procurement strategy. We're also making good progress at developing solutions for potential building lease, possibly in combination with a bond issue or other instruments. As we prepare for a final investment decision for the first gigafactory, we will likely combine financing solution to facilitate a phased development of the plant. In parallel, we are pursuing opportunities to secure funding through grants. Longer term, we will seek to diversify funding sources and optimize our capital structure as we execute on our strategy. This includes securing financing for additional gigafactory build-outs in Norway, the U.S., and Finland. On that note, I'll turn the call over to you, Tom, for your closing remarks. Tom?
Thank you, Steffen. Let's move to the next slide and summarize the key strategic priorities of the company. FREYR was built up around three core strategic tenets around speed, scale, and sustainability. They are mutually reinforcing, and our progress depends upon filtering everything we do through these lenses. We are executing on our plan to establish 100-150 GWh of clean battery production in Europe and the U.S. by 2030. We are now, as mentioned by Steffen, securing the capital required to finance the combined gigafactories one and two. This will complement our already strong cash position, which was unlocked through our IPO on the U.S. stock market last year.
We're identifying additional capital solutions to facilitate planned gigascale build-out across Norway, U.S., and Finland, in addition to select participation up and downstream from battery cell manufacturing capacity to decarbonize the supply of raw materials, and localize the same, as well as unlocking additional customer segments and additional value capture. The localization and decarbonization of the supply chains are well advancing. We are very happy to see that we are making strong progress in a highly tight environment to secure frame agreements, allowing us to start the production of the customer qualification plant and initial deliveries of the gigafactory one and two. We will keep expanding our initiatives to establish the Nordic Battery Belts, or the Nordic Battery Belt, I should say, comprising the key raw material inputs going into battery cell manufacturing.
That is cathode, anode, electrolyte, lithium in different sources, and so on and so forth. We are now negotiating volumes and prices on raw material frame agreements and complementing that with additional efforts to ensure that we have a cost-competitive supply of the critical inputs needed for battery cell manufacturing across all the regions we are intending to establish such capacity. What we are doing now in Norway and the Nordic region is an excellent blueprint for replication, which we obviously will leverage in our U.S. strategy, which we, by the way, are well advanced in progressing on moving into multiple site evaluations for a site selection process targeted to happen later this year with an ambition to make our first final investment decision for U.S. facility towards the end of 2022.
We are progressing strongly on our journey to gigascale commercialization. We are converting the initial, offtake agreements into firm sales agreements. We will be executing a modularized and phased, investment decision on the combined gigafactory one and two, which as mentioned, is now increasing in capacity to one larger facility of 18 GWh, primarily of LFP production. We will continue to sign additional agreements on the offtake side to support further growth, and we will then, aggressively proceed to additional investment decisions on, new gigascale facilities beyond our gigafactory one and two across Norway, U.S., and Finland. FREYR is very proud to be a core part of the energy transition space.
Batteries are a key enabler for a rapid acceleration of moving to a sustainable future and building large capacity rapidly with a deep sustainability footprint is probably one of the most important catalysts for the energy transition that we have in front of us. We thank all the investors in FREYR for your faith in what we're doing. We look forward to continued collaboration with all of our investors and invite additional companies and stakeholders to participate in this exciting journey moving forward. Have a great day, everyone. Now we turn over to questions and answers. Thank you very much.
Thank you. If you wish to ask a question, please dial zero one on your telephone keypads now. If you find your question has been answered before it's your turn to speak, you can dial zero two to cancel. So once again, that's zero one to ask the question or zero two if you need to cancel. Our first question comes from the line of Evan Silverberg at Morgan Stanley. Please go ahead. Your line is open.
Hey, good morning, guys. Evan Silverberg , on behalf of Adam Jonas. Understanding that there's not a formal guide for CapEx and OpEx for 2022 yet, but how can we think about the range of outcomes there? Obviously, it's putting a lot of stuff in the ground. Probably need to hire, you know. Are we thinking it's magnitudes higher? Just any color there.
Thank you, Evan, and good morning, and thank you for that question. As mentioned during the presentation, we are now firming up the basis for the final investment decision for the combined gigafactory one and two. When we have such basis, we'll come back to the market with a detailed breakdown of the CapEx estimates, as well as the schedule of the same. What I can say is that we're still confident that the TwinFab technology offers material cost savings relative to conventional battery cell manufacturing capacity. As I've said many times before, anyone with a Reuters screen and are participating in the market space will, of course, be well advised that there is inflationary pressure on nearly all cost components and aspects that go into this development.
You should expect a general increase, of course, in the CapEx estimate for various facilities. They will still be roughly 50% cheaper than what conventional capacity will be subjected to in this timeframe. What is an important point to note is we have a very experienced project execution team that have entered into deep collaborative approaches with various suppliers across the supply chain of the materials and more importantly, the manufacturing equipment that we need. We're doing everything we can to mitigate any potential cost increases.
As I said, part of the benefit of having the twin frame technology with a dramatic reduction in number of production steps relative to conventional capacity, and therefore a dramatically shrunk footprint of the battery manufacturing capacity does allow for a lower than conventional cost and CapEx estimates. As stated, we'll come back with specific estimates on that in short order.
That's helpful. Thank you. Just one follow-up. I mean, I guess, yeah, I understand coming back after FID. Can we assume that the cash consumption rate prior to FID will be similar to what we saw in the fourth quarter? You know, what is the timeline for FID to make sure that you're still on track for first half of 2024?
Yes, you can assume that cash burn will be roughly in line with fourth quarter. Of course, we are taking early commitments and early works to ensure that we are on track for starting up the first half of 2024. That is well underway. We do believe that we will have the sufficient bankable propositions in place during this half of 2022 to allow us to make initial investment decisions, which we'll communicate to the market later this spring and early summer. We are on track to start up capacity in gigafactory one and two in the first half of 2024. We will make investment decisions correspondingly to ensure that we can reach that timeframe.
Thank you very much.
Thank you. Our next question comes from the line of Maheep Mandloi of Credit Suisse. Please go ahead. Your line is open.
Hey. Good morning. Can you guys hear me?
Yes, we can.
You're coming through loud and clear.
Oh, yeah. Cool. Oh, thanks, guys. To just first just on the FID, I think in the slides you talked about a phase FID. Could you just talk more about that? I know you just said it's in spring, early summer kind of a position. What can we expect, and as part of that, like, do you have to wait for conversion of those customer contracts into firm contracts or that's a different track altogether? Thanks.
Practically speaking, Maheep, right, we will be installing these production lines in a sequenced order. We're not able to, nor is it industrially sensible, to implement all of them at the same time. As mentioned, there will be eight production lines similar in size to the production line we are now on track to starting up in the Customer Qualification Plant. Of course, all the learnings that we're having from the CQP, as we call it, will be implemented in this phased approach. Every other month we will be installing a new production line and then ramping that up to full capacity. That sort of gives you a little bit of a sense of what the ramp-up phase will be like.
A big part of the reasoning behind investing in the customer qualification plant at an actual industrial scale facility is to minimize the ramp-up time and to get rapidly up to high yield and high uptime in the facility. When it comes to the phased FID approach, we obviously want to ensure that we have an optimized capital structure, and the offtake agreements are, of course, core components in unlocking bankable project finance structures which are well advanced in pursuing with international and local banks, supported deeply by the Norwegian export credit agency through export-oriented guarantees, grants and other aspects. When we make this first FID, we will obviously complement that with announcing the final financing structure around it.
As we gradually then build out capacity, more and more financing will be attracted into the facility, or into the company, I should say. We're well advanced in doing that so that we can be on track to starting up the facility, in the first half of 2024.
Got it. Just on the start, the assumption that you'll ramp up in the second half of 2024, and I think some of the supply contracts start in 2024, right? Could you just probably talk about that cadence of those supply contracts through from 2024 to 2028 or 2030? How should we think about that, as the supply ramps up?
Raw material supply will, as we have alluded to previously, gradually go from an existing supplier base, all the approved or pre-approved suppliers of the SemiSolid technology, and the 24M framework agreements that we have announced, the nine out of 13 that is already signed, and the remaining four, which will be signed in Q4 or in short order, allow us to have initial volumes coming into the customer qualification plant as well as gigafactory one and two. We are complementing that approach with a localized joint venture type approach, where the Elkem partnership we announced some weeks ago is one example of how we aim to capitalize on a localized and decarbonized supply of materials.
In addition to this, we obviously also in process with a number of other suppliers, from lithium hydroxide to lithium carbonate to various phenols, natural and synthetic providers, as well as cathode providers. Not only LFP, but also NMC, as we want to sort of be ahead of the curve in terms of what our customers would want. We do see a very strong movement towards the LFP segment, which also sort of limits the burden of some of the nickel and manganese supply into the capital side of things, whereas iron and phosphate is a quote-unquote simpler and easier sort of raw material process to cover. All in all of this is done in sync with the rollout of capacity.
We are well advanced in ensuring that the initial volumes that we will be producing in our first facilities are already secured, and we continue to complement that with an increasing localization and decarbonization footprint, so that we can also capture the cost advantages of low-cost renewable energy and the decarbonization advantages of the same over time. This we will do with world-leading, well-established companies who see the benefit of establishing production of key input factors into battery cell manufacturing in the Nordic region. We have a broad variety of processes and structures ongoing in that regard. Quite confident that the raw material supply side is well captured the way it looks now. There is a lot of new battery cell manufacturing capacity that needs to come on stream.
As we've said many times, we need to sort of be very active in this space to ensure that we have sufficient traction on critical input factors into battery cell manufacturing. So far so good.
Just thanks for that, and I really have to understand the supply side. Then just the last one from me, and then I'll get back in the queue. Yeah, could you just talk about like the commodity inflation, like we're definitely seeing in lithium carbonate and other raw materials here. And we'll see what happens with the, you know, as you alluded to, there's a lot of demand for batteries coming up. How does that picture into your discussions with your suppliers today? Right.
Yeah. Clearly, this is filtering through not only to raw material pricing assumptions, but also to the offered battery cells in the marketplace today. As many might know, battery prices for battery cells in 2021 and in 2022 and possibly beyond is probably set to increase due to the increase in raw material prices. Now, for FREYR, we will implement pass-through mechanisms in our agreements with our customers so that a relevant fraction of our exposure to raw material prices are shared and passed through to our customers. They're already seeing price hikes of 20%-25% in current battery cell supply from Asian providers, and this is in large part driven by the inflationary pressure on the raw materials provided.
From a profitability point of view, given the pass-through mechanisms that we're implementing in our sales agreements and the fact that we are taking equity positions in joint venture structures with a localization decarbonization strategy. We are increasingly confident that the margin picture in the company remains robust. We are in a situation where temporary, quite significant inflationary pressures are being experienced across the board in the raw material space. Again, you have to get up very late in the morning not to be aware of this, but we get up early in the morning and we're ahead of that problem, and we have good solutions to it, both from a commercial as well as a supply security point of view.
Got it. Now back to taking your questions, guys.
Thank you. Our next question comes from the line of Fredrik Stene of Clarksons Platou Securities. Please go ahead, your line is open.
Hey, Tom and team, and congratulations on the quarter here. I have two questions for you today. I think the first one relates to just FIDs in general for not only what's happening in Norway, but also what's happening in the U.S. and, for example, Finland. You've come to a point where approximately 70% of the first round of gigafactories in Norway has been covered by offtake agreements. I was wondering, in your ongoing discussions for more offtake agreements, do you have sort of a threshold that you need to see being put in place before you go ahead with FIDs elsewhere?
Obviously, there's a bankable angle to this, but is there a ballpark what we would need to see before we can be quite certain that it's fair to assume these other factories going ahead this time as well?
Thank you for those questions and good morning or good afternoon. When it comes to our thinking around this, what we have communicated earlier is that we need to see at least 50% of the capacity to be installed, committed for at least three years before we will contemplate adding capacity and sort of making investment decisions against it. This is a threshold that we have been discussing with project finance advisors and banks and seems to be resonating as kind of a relevant threshold in particular in the current market environment. What we've also sort of stated previously is that in a very strong market short environment, ideally, you don't want to necessarily tie up too much of your capacity in long-term structures.
The flip side of that, of course, is that we are still a very young company. We're implementing a gigawatt power scale, a recently nascent technology, and therefore we would tend to want to cover more of the capacity in the early stages of that rollout than what we would gradually over time, potentially need to do when we do these iterative processes with the project finance providers. Generally speaking, you should expect that we are on track to make the full investment decision for gigafactory one and two in Norway later this year. You should expect us to make investment decisions in the U.S. later this year. We are also working hard to potentially make investment decisions also for capacity in Finland towards the end of this year.
Our ambition is still to produce or to have in production 43 GWh of battery cells in 2025 and 83 GWh cells in 2028, going to the 150 GWh in the 2030 timeframe. We will probably have more of the initial capacity covered by long-term offtake contracts in the early stages of that journey than what we potentially would do in the later stages of that journey. The final thing I'd like to say is that the modular and very scalable proposition of the 24M technology does allow us to dedicate a large part of our production to specific customers. What this means is that we can, to a certain extent, tailor make production lines to specific needs of specific clients.
This is obviously something that is also resonating quite a lot with the customers who are today primarily subjected to more or less standardized off-the-shelf products in a more commoditized sort of context from Asian providers, whereas we provide a more tailor-made solution but leveraging the same raw material supply chains, and of course, a deeply decarbonized and more cost-optimized solution. Back to your question, we will be making investment decisions in Norway, Finland, and U.S. later this year. We'll probably also make investment decisions on select upstream participation opportunities like the one that we have recently announced. We will then gradually and consistently be adding more capacity across these three regions in the quarters to come.
Hopefully that gives you some more color on how we're thinking about this.
No, that's actually super helpful. A follow-up on that and I guess a bit in line with the themes from the previous questions as well. You mentioned that the margin that you're generating, you're protecting that by having some sort of mechanism on your raw material supplies, but that can be passed on to your end customers. I was wondering just in kind of over the last 12 months in your initial offtake discussions, have you experienced any change in willingness among those participants to get that extra cost thrown at them just because they have limited other alternatives to secure battery cells?
Well, without going into too much detail, reality prevails, right? Reality shows that, one, there is limited supply of batteries. The ongoing decarbonization of the transportation sector means that an increasing number of electric vehicle producers are, in a way, taking up most, if not all, of the available capacity in the market. Which then means that energy storage providers, commercial vehicle providers, and other companies that have increasing demand for batteries are subjected to securing cell supply elsewhere. They're also being informed by their existing suppliers, if they're already having long-term relationships with Asian and/or Chinese providers, that prices are going significantly up as a result of the raw material price increase.
When we are then discussing our commercial relationships, there is no surprise nor any sort of negative reaction to the need to have a balanced approach in passing through some of those costs. Typically, we pass through most of the costs that have market references attached to it so that it's easy for us to sort of monitor how the prices are moving. And then, our profitability becomes, in large part, a function of both our participation upstream on the supply side, but also our conversion cost focus. In that context, having the most effective and sort of capital-efficient technology that 24M represents does allow us to really drive down conversion costs relative to conventional production quite significantly.
The combination of a localized raw material strategy with a superior conversion cost technology, if I may, gives us a very strong opportunity to pass through part of the cost increases that we're seeing, but also offer lower costs and prices to our customers relative to what they're subjected to from conventional technology. I actually think we are in a situation where capturing additional market share is kind of unfolding in front of our eyes. We're very excited about the reaction that we're seeing in the market.
Thanks, guys. This is super helpful. I'll pass it on. Thanks.
Thank you. Our next question comes from the line of Saad Patel at JP Morgan. Please go ahead. Your line is open.
Hi, this is Saad Patel. I'm on for José Asumendi with JP Morgan. I have a few questions. The first one is, you know, on slide number 11, you've given the breakdown between the different kinds of agreements. Can you just talk a little bit about the contracts or the discussions you are having with automakers currently? You can also remind us how do you think about profitability and the business opportunities on auto versus ESS, considering your initial two contracts have been on the ESS side? I can ask my second question later. Thank you.
Thank you. We will, of course, on a running basis, when we have converted these processes into firm agreements, announce them to the market. There are some of the largest auto OEMs literally behind many of these discussions. I think a core part of what is driving their interest is one, the need to have a localized battery cell capacity. They depend too much on Asian supply today, and therefore there is deep willingness across that, dare say, almost all European and U.S. automakers to create structures whereby localized production of capacity is unlocked, so to speak. Now, we are then talking to and negotiating with the larger players as well as more newcomers into this space.
I think at the heart of the discussion is really what can the technology deliver in terms of technical characteristics of the product itself. And then the fact that Volkswagen invested into 24M and took up the license of that technology towards the end of last year has clearly increased the interest, not only from the dialogues we had at the time, but also increased the interest in partnering with FREYR for cell manufacturing for, let's call it the vehicle space, right? Commercial and passenger vehicles. Across those segments, there are different, of course, segments in it from the ultra-high energy density fast charge solutions to more overnight charge and lower cost sort of segments, which then stipulates what cathode chemistry and sort of anode chemistry you want to put into the equation.
There's a broad variety of different demand segments that are firming up. With a flexible production platform that is chemistry agnostic, meaning that we can principally produce both NMC and LFP and other cathode chemistries into the same production platform, we have a deep opportunity to create, again, tailor-made and custom-made sort of solutions for our customers. Again, I think the profitability aspect of our client relationships or customer relationships is a function of the pass-through mechanisms on raw materials and our conversion efficiency. We generally see that the 24M technology offers both bill of material cost savings as well as conversion cost savings relative to conventional capacity. We will then balance that against the need for large volume commitments. As mentioned, we do see that demand is much higher than supply in the foreseeable future.
Again, we're going to optimize for value and ensure that we have margins in the products that we sell that are in line with or even maybe above what we have indicated to the market earlier. Yes, there are a number of automakers and commercial vehicle producers behind the funnel. We will be announcing them when we have struck development agreements. These agreements will be struck based on a balanced approach of ensuring that we optimize for value for the capacity that we build.
Sorry. Very clear. My second question is, on the lines of, you know, with these FIDs coming into the picture now, do you have any royalty payments that go to 24M, when you strike an FID or any sort of milestones, with FREYR?
Our deep licensing and services agreement with 24M has no limitation on it in terms of where we are now targeting to establish production capacity. As we have mentioned before, this is an evergreen production license, and we can establish capacity anywhere in the world with temporary restrictions in Japan and Southeast Asia, given the licenses with Kyocera and GPSC in Japan and Thailand, respectively. Those restrictions lapse at the end of this year. After that, we could, if we wanted to, establish production capacity in Asia as well. Not that we necessarily have ambitions to do so. To answer your question, there is no need for us to go back to 24M to ask for anything or to pay anything specifically when we are establishing new production capacity in the areas we are now moving forward towards FID.
As we start producing and selling to our customers, there will be a running royalty-based fee that then goes to 24M. That royalty fee is declining over time as volume increases.
That's very helpful. Just one final question. Can you just remind us that the plants that you're planning to set up, what is the financing structure on that? You're looking at a 25% equity, 75% debt structure on them?
We will come back to the market with the details of the final financing structure for this phase FID development. As you can imagine, we are pursuing project finance-based structures for it, coupled with grants and equity already raised into those facilities. We are also looking into, as the CFO mentioned on the call, various bond-like structures to essentially ensure that we have as low cost of capital into the initial facilities as possible. We see an increasing interest across the board, across all financing classes into this. We will be making detailed breakdowns of that financing structure when we are announcing the FID sometime later this year.
All right. Thank you so much.
Thank you. Our next question comes from the line of Greg Lewis at BTIG. Please go ahead. Your line is open.
Hey. Thank you, and good afternoon and good morning, everybody. Realizing we're running a little long here, I'll just ask one. Tom, you know, clearly you're having lots of conversations around the supply chain. It's definitely, you know, a major issue facing the battery cell supply for probably the next couple decades. You know, realizing that we can see spot pricing that is, you know, high, you know, I think, you know, that being said, that's not a huge swath of the market. So as we think about building your portfolio of supply contracts for raw materials, do you have any sense or targets how you're thinking about securing spot versus fixed pricing as you build out your portfolio of key raw material supplies?
Well, good morning, Greg, and thanks for that question. Yes, we are of course thinking about these things. I think we generally see the raw materials as a critical strategic component of being a battery producer. That is why we have consistently been saying that a localized and decarbonized supply chain of all critical inputs into battery cell manufacturing with participation in that capacity over time is going to be important for us. In the initial supply through the same agreements and additional agreements with providers, we will be having a mix of long-term arrangements and possible flexibility around more spot-based pricing. We will try to limit that of course, as much as possible given what we're seeing in the market today.
I think you should see and think about today over time as being deeply present in the upstream part of the value chain, because that is going to be core to ensure over time that you have not only the lowest potential cost of the biggest cost component of producing batteries, but also the most decarbonized, let's call it supply into this. Just to underline, many of you already know this of course, energy is one of the biggest cost factors in processing these different metals into processed battery materials. That is why the interest in partnering with the likes of FREYR in the Nordic region is very high. Because still on a relative basis, energy prices in this area is very competitive relative to anywhere else in the world.
Of course, on top of that, you get all the savings from logistics by actually processing this in the vicinity of where the battery cell manufacturing capacity is being established. Finally, there is, of course, also quite a lot of the actual raw materials present in the Nordic region and many places in the U.S. where we're now progressing towards site selection activities and well advanced in sort of identifying a set of different locations in the U.S. where access to raw materials and over time also taking those raw materials and processing them close to our facilities is going to be part of the footprint that we establish. It's not a one-size-fits-all or one sort of simple answer to that question. I don't think you were expecting that either.
We will be sort of doing a mix of things to ensure that, one, we have the actual material we require to produce the volumes that our customers require. Two, actually then be able to provide that volume to the customers they need to be on board with commercial structures that allow us to mitigate the risks that those price increases on more spot basis would entail. All of that is now being discussed and being negotiated in a very sort of forward-looking and positive environment, I should say, irrespective of the deep challenges that we're seeing in the marketplace around us.
Perfect. Thank you for the color.
Thank you. We currently have one further question in the queue. Just as a reminder to participants, if you do wish to ask a question, please dial zero one on your telephone keypads now. The next question is from the line of Kenneth Sivertsen of Pareto Securities. Please go ahead, and your line is open.
Hi, Tom and team. Congratulations with the 2021 results. On the 24M technology, could you give us some insight or experience from other partner in the process of ramping up production there? That's the first one.
Thank you, Kenneth. The 24M technology as we have talked about previously, part of the reason why we selected it was we were looking for sort of three things in our technology strategy. We were looking for commercially introduced technology, one that offers step change in performance and cost, and one that could really sort of show further improvements down the line as you take it to gigawatt hour scale. FREYR is the first to take it to gigawatt hour production, and the first licensee in Europe. We have an increasing and strong relationship with all the other licensees of the 24M technology. We visited some of them, seen their facilities.
Actually, as also mentioned by Jan Arve in our presentation, we're implementing part of the learnings that they have seen when they are implementing their facilities into our manufacturing footprint. Kyocera was the first one to take initial commercial volumes into the market, and they started pilot production in 2019 and have gradually been increasing capacity in Japan for the domestic energy storage market. It's still reasonably early, but all the learnings that you know we can leverage, whether it is from 24M itself or from our licensing brothers and sisters will be of course investigated and catered for in the rollout of our own capacity.
At the same time, we are identifying and implementing efforts to ensure that we can have enough high availability or uptime in production as possible, while leveraging the CQP to ensure that we can ramp up capacity and yield as quickly as possible in a pre-commercial facility as the CQP would represent, and therefore leveraging those learnings when we have this modularized rollout of our production lines in gigafactory one and two and beyond.
Thank you. Just to follow up on this CO2 footprint, we see in other base materials such as aluminum, steel, and iron, that green metal will gradually attract a premium. Any thoughts on how this could play out in the battery space?
Well, yes, we have lots of thoughts around this, right? We want to be the leader in this space by offering the absolute greenest batteries on a life cycle basis that is offered into the marketplace. Our initial ambition of an 80% reduction in CO2 footprint along the value chain has been articulated. The sort of value that that could represent relative to our production footprint is indicated in this presentation. If you think about the current ETS prices in Europe and assume that they are representative of a value attribution to that CO2 reduction, you can see a ±$6 per kWh savings, if you like, and/or value that is generating from the lower CO2 footprint.
Now from our perspective, given what is out today from the IPCC, on the sort of impact of climate change, all of this will just create more momentum around firmer carbon prices, carbon tariffs, carbon walls, decarbonization efforts. Exactly how those CO2 footprint reductions will manifest itself along the value chain is still somewhat unclear. Of course, if we're thinking about half a billion dollars in value, at an 83 GWh capacity to be shared in some way between where you are participating in the value chain, the upside is obviously quite significant. This sort of underlines, you know, what we have been saying all along, that if batteries are meant to be the core catalyst for decarbonizing transportation and energy systems globally, they themselves need to be decarbonized.
We are now seeing an increasing financial and return sort of impetus around that as well. We will obviously be guiding and updating the market on where we're seeing that moving as we are progressing to the 80% reduction and beyond. Over time, we do believe that having more and more decarbonized battery cell manufacturing capacity and better and better battery solutions will enable the harder to abate parts of that value chain to also be decarbonized. With a localized and decarbonized raw material supply chain into the same, it is not impossible to envisage an earlier net zero ambition across that entire supply chain.
With our earlier estimates of around 80 kilograms of CO2 per kilowatt hour of battery produced, it's just basic math that sort of allows you to indicate what the value of that sort of becomes. We believe it's significant, and it has to be significant to ensure that we can speed up and accelerate a broader rollout of decarbonized battery cell solutions.
Thank you.
Thank you. As there are no further questions in the queue, I'll hand back to Tom for the closing comments.
Thank you, Mark, and thank you everybody for your interest. We're looking forward to catching up with you on the road or virtually this quarter. We will talk to you soon, and please don't hesitate to follow up if you have further questions today or later this week. Thanks and take care.