QuantumScape - Q1 2023
April 26, 2023
Transcript
Operator (participant)
Good day, welcome to QuantumScape's First Quarter 2023 Earnings Conference Call. John Saager, QuantumScape's Vice President and Capital Markets and FP&A, you may begin your conference.
John Saager (VP of Capital Markets and FP&A)
Thank you, operator. Good afternoon, thank you to everyone for joining QuantumScape's First Quarter 2023 Earnings Call. To supplement today's discussion, please go to our IR website at ir.quantumscape.com to view our shareholder letter.
Before we begin, I want to call your attention to the safe harbor provision for forward-looking statements that is posted on our website as part of our quarterly update. Forward-looking statements generally relate to future events, future technology progress, or future financial or operating performance. Our expectations and beliefs regarding these matters may not materialize. Actual results and financial periods are subject to risks and uncertainties that could cause actual results to differ materially from those projected.
There are risk factors that may cause actual results to differ materially from the content of our forward-looking statements for the reasons that we cite in our shareholder letter, Form 10-K, and other SEC filings, including uncertainties posed by the difficulty in predicting future outcomes.
Joining us today will be QuantumScape's Co-founder, CEO, and Chairman, Jagdeep Singh, and our CFO, Kevin Hettrich. Jagdeep will provide a strategic update on the business, and then Kevin will cover the financial results and our outlook in more detail. With that, I'd like to turn the call over to Jagdeep.
Jagdeep Singh (Co-Founder, CEO, and Chairman)
Thank you, John. I'd like to begin with an update on customer prototype testing. As you may recall, last year, we shipped a variety of prototype cells for testing to prospective automotive and consumer electronics customers, including 24-layer A0s to the automotive sector and zero externally applied pressure single-layer cells to the consumer electronics sector. We're happy to report today that planned testing of 24-layer A0 prototype cells at one automotive customer is now complete. In line with what we reported in our last shareholder letter, most cells performed very well, meeting performance targets on fast charge and generally showing good cycling capacity retention and high Coulombic efficiency, with capacity loss of less than 1% per 100 cycles. However, we have work to do to improve reliability as we transition from prototype to commercial product.
Similarly, on the consumer electronics front, we can report that customer testing of zero externally applied pressure single-layer prototype cells is also complete, with the cells generally performing very well on a broad range of electrical performance and characterization tests, including cycle life, resistance, storage life, and tests at multiple rates and temperatures. Here too, the cells displayed less than 1% capacity loss per 100 cycles, though as I mentioned, we have work to do on reliability.
The results of these independent tests provide validation of what we've seen in our own labs. We continue to see consumer electronics as an attractive market, and our zero externally applied pressure capability gives us optionality to pursue consumer electronics alongside our automotive development efforts as we continue to engage with some of the largest consumer electronics players in the world.
On the reliability front, we've already identified and begun executing a number of initiatives to improve the quality and uniformity of our materials and processes, which we believe will lead to better reliability as we continue to get closer to a commercial product. As an example, a material used during the separator heat treatment step was identified as a source of particle contamination, and we've begun the transition to a different material and are already seeing encouraging results in reducing particle counts and improving quality and consistency.
Next, I'd like to give an update on our technical development. On our last earnings call, we laid out the key goals we had targeted for 2023, which are designed to facilitate our transition from technology demonstration to commercial product. One of these goals was to introduce a higher cathode loading, which contributes to better energy density.
There are two main challenges with making higher loading cathodes. The first is to manufacture these cathodes with the necessary quality and consistency while maintaining the ability to deliver sufficient power. The second is to maintain performance even at the higher current densities that go along with higher cathode loading, approximately 60% higher than the previous cathodes.
We're therefore excited to report that we've already made and tested two-layer unit cells with these higher loading cathodes, and in our shareholder letter, we published data showing very good cycling capacity retention at high 1C or one hour average charge discharge rates, consistent with the data we previously published from cells with lower loading cathodes.
In addition, we also showed data demonstrating sustained discharge rates of approximately 5C at 25 degrees Celsius and as high as 8C at 45 degrees Celsius while still accessing approximately 50% of the battery's nominal capacity. When it comes to power performance, we believe an important benefit of our solid-state lithium-metal system is the ability to deliver high rates of power, even in a high-energy cell design, a combination that lends itself well to high-performance applications.
Now I'd like to discuss our progress on product development. First, a bit of background on the product side. As a result of our customer engagement across the automotive and consumer electronic sectors, we believe there's a significant opportunity for a cell that combines high energy density and high power.
To enable a commercial product that can serve either consumer or automotive applications on the shortest timetable, we're targeting a single track dual-purpose design that we believe presents an attractive value proposition for both automotive and consumer electronics applications. We now have a target for our first commercial product, a 24-layer cell with a capacity of approximately 5 amp-hours.
This is in a similar capacity range as the 2170 battery used in several leading EVs. We believe this initial product design makes the most efficient use of our resources and represents the fastest path to market while delivering a product that presents a compelling combination of energy and power. Importantly, this design uses the same layer count and similar separator area as the 24-layer A0 prototype cells that we've already shipped to customers, de-risking these aspects of the product development process.
This allows us to focus on integrating the key remaining functionality, including the higher loading cathode and more efficient packaging, as well as improved reliability. All key goals we set out for 2023. We also expect this first product to take advantage of our new fast separator production process. Now that we have line of sight to this first commercial product, we can begin finalizing equipment designs for upgraded higher volume production on our consolidated QS-0 pre-pilot line.
As a reminder, our current production plan for QS-0 is based on our new disruptively faster separator production process. We currently plan for deployment of this fast process in two stages. The first stage, targeted for later this year, is designed to triple throughput using similar equipment to our existing line. The second stage targets even higher throughput to support higher volume QS-0 production and requires new equipment.
We can now report that the installation of our first data equipment is already underway. We aim to complete installation, qualify the equipment, and deploy this first stage into initial production this year. We're also already operating prototype versions of our second stage equipment and are working towards final equipment specification.
I'd like to close with a word about the big picture strategic outlook for the company. 2023 is about turning the corner from technology demonstration toward a commercial product. This represents a phase transition, both in the history of our company and in the nature of our development work. As always, we emphasize that continuing to improve quality, consistency, and throughput of our manufacturing processes and increasing reliability of finished cells is not a trivial task.
It requires an ongoing and systematic process of identifying and addressing issues, working with material and equipment suppliers, and iterating through new processes and cell designs. Yet facing the challenges of scaling up is also a rare privilege. Historically, many emerging battery technologies fail well before this point, often because the basic electrochemical system does not have the intrinsic capabilities necessary to meet customer requirements.
Therefore, it's always motivating to see results from customer testing that validate the core capabilities of our technology. Based on results like these, we believe it's possible to produce a commercial product using our solid-state lithium-metal platform that simultaneously achieves high energy density and high power capability, starting with a 24-layer, approximately 5 amp hour cell. We believe this compelling combination is made possible by the intrinsic capability of our technology.
Though we have much more work to do as we progress through our roadmap, we believe the work we've done so far has established a solid foundation and that we're closer than ever to our first generation solid-state battery product. Thank you for your support. We look forward to reporting on our continued progress next quarter. With that, I'll hand things over to Kevin.
Kevin Hettrich (CFO)
Thank you, Jagdeep. In the first quarter, our GAAP operating expenses were $110 million. Our GAAP net loss was $105 million. Cash operating expenses, defined as operating expenses less stock-based compensation and depreciation, were $63 million. This level of spend was in line with our expectations entering the quarter.
For full year 2023, we reiterate our guidance for cash operating expenses to be between $225 million and $275 million. CapEx in the first quarter was approximately $28 million. First quarter CapEx was primarily directed towards facility spend for our consolidated QS-0 pre-production line. We also procured equipment for our fast separator production process and cell safety test lab. For the remainder of the year, our CapEx will primarily go towards facility work and equipment for QS-0.
We reiterate our guidance for full year 2023 CapEx to be between $100 million and $150 million. We ended Q1 with just over $1 billion in liquidity. We continue to make progress on ongoing cost savings initiatives and resource optimization. We reiterate our cash runway is forecast to extend into the second half of 2025. Any funds raised from capital markets activity, including under the at the market prospectus supplement filed on February 28th, would further extend this cash runway. With that, I'll pass it over to you, John.
John Saager (VP of Capital Markets and FP&A)
Thanks, Kevin. We'll begin today's Q&A portion with a few questions we've received from investors or that I believe investors would be interested in. Jagdeep, there's a perception that some players in the industry are moving to larger cell formats. Why have you chosen 24 layers or 5 amp hours as the size of your first commercial cell?
Jagdeep Singh (Co-Founder, CEO, and Chairman)
Yeah. We've seen OEM interest in both large and small cells, but what everyone is interested in is energy density. Over time, we plan to make both small and large cells. For our first product, we want to minimize time to market. We believe our 24 layer 5 amp hour design has the potential to deliver energy densities and power capability higher than cells used in many leading EVs today. So we think this design already offers a compelling value proposition.
By using the same layer count and similar separator area of the A0 samples that we've already shipped, we believe we can minimize the amount of additional work required to get to market. Finally, this product also provides us the flexibility to serve the consumer electronics sector.
John Saager (VP of Capital Markets and FP&A)
Great. Thanks for that helpful context. There's been a number of announcements in recent months regarding new battery technologies, including 500 watt-hours per kilogram announcements from some players, as well as, sodium-ion batteries. How do those announcements affect your market outlook?
Jagdeep Singh (Co-Founder, CEO, and Chairman)
We're pleased to see industry players recognize the importance of higher energy density and the need for new chemistries to deliver this capability. Of the two recent announcements I'm familiar with, we've yet to see any data showing performance at high rate, long cycle life, room temperature tests. Of course, without such data, it's very hard to evaluate any claims.
Regarding sodium-ion, some of the figures we've seen suggest it has a very low energy density, so it's likely unsuitable for high-value automotive applications. In addition, note that if you change the ion that's transporting charge through the cell from lithium to something else, you're changing the entire stack, including the cathode, the anode, and the electrolyte, potentially introducing unknown or unexpected materials interactions, in addition to requiring an entirely new supply chain. We don't know what the specific material supply chain is for this class of battery.
John Saager (VP of Capital Markets and FP&A)
Thanks, Jagdeep. Kevin, one question for you. Can you talk to how the company is navigating the continuing macroeconomic uncertainty and the banking system strain that we witnessed in the quarter?
Kevin Hettrich (CFO)
Yes, happy to. Four points I'd like to make. First, I'd like to highlight the strength of our balance sheet. We ended the quarter with just over $1 billion in liquidity. We reiterated guidance in our shareholder letter that we continue to see our cash runway extending into the second half of 2025. Additionally, concurrently with the filing of our annual report at the end of February, we filed a $400 million at the market prospectus supplement. Any proceeds from this would further extend our cash runway.
Second, we remain prudent on the use of funds. We continue to make progress against a number of internal cost-saving initiatives, focusing on both OpEx and CapEx.
Third, our investment policy prioritizes the preservation of principal and liquidity. We have invested our treasury funds in what we view as a conservative manner, both in terms of duration, less than 18 months weighted average maturity, and credit quality. Greater than 75% of our portfolio is invested in U.S. government obligations and AAA-rated money market funds. Regarding institutional relationships, we use multiple banks for treasury management, and following SVB's insolvency, have added additional operating relationships as well.
John Saager (VP of Capital Markets and FP&A)
Thanks, Kevin. Jagdeep, turning back to you. Can you give investors a sense for the level of quality QuantumScape needs to make the system work with higher levels of reliability?
Jagdeep Singh (Co-Founder, CEO, and Chairman)
Yeah. As we said before, we believe reliability is a function of defect density, and defect density is a function of quality and consistency, which are in turn functions of cleanliness and process control. As we move to more automated tools, we tend to see improvements on all of these fronts.
To give you some context, some industries, such as semiconductor and the magnetic spinning disk storage industries, require very high levels of cleanliness and process control. For example, the magnetic storage industry, a very high volume industry which ships millions of hard disk drives every year, has heads that float nanometers above the surface of the platters, which are spinning at thousands of RPM. This requires cleanliness on the order of nanometers. By contrast, we believe we require cleanliness on the order of microns, 1,000 times less stringent.
As we continue moving to more automated tools and continue to identify and resolve sources of defects, we believe we'll be able to further improve our reliability.
John Saager (VP of Capital Markets and FP&A)
Okay. Thanks so much, guys. We're now ready to begin the live portion of today's call. Operator, please open up the line for questions.
Operator (participant)
If you would like to ask a question, please dial star followed by one on your telephone keypad. If for any reason you'd like to remove that question, please press star followed by two. Again, to ask a question, press star one. As a reminder, if you're using a speaker phone, please remember to pick up your handset before asking your question. We'll pause here briefly as questions are registered. The first question is from the line of Jordan Levy with Truist. Your line is now open.
Jordan Levy (VP of Equity Research)
Afternoon, all. Congrats on the design decisions. Nice next step for you all. Maybe to start, I just wanted to see if you could help us benchmark the cell design you're targeting versus some of the cells available in the market today, maybe the 2170 or 4680, in terms of what EV battery performance metrics could theoretically look like down the line once you get things scaled up.
Jagdeep Singh (Co-Founder, CEO, and Chairman)
Absolutely. As we mentioned in our letter, the 2170 that we're familiar with has an energy density somewhere in the low 700s in terms of watt-hours per liter. We believe that even with our 24-layer design, with the same area separators or similar area separators to what we've already shipped with our A0s, we can exceed that number. I think the other thing that to keep in mind is that we believe not only can we exceed those energy densities, but we believe that we can do that while maintaining high levels of power. That combination we think is relatively unique. We think there's a compelling value proposition with that 24-layer cell, 5 amp-hours, which really allows us to
Minimize the amount of additional work that would be required if we were to change the layer count or change the area dramatically, or other things like that, which in turn then allows us to basically de-risk those parts of the development process and get to market as quickly as possible.
Jordan Levy (VP of Equity Research)
Thanks, Jagdeep. Maybe a separate question, if you could just give us a little more detail on the process and steps for scaling up the next production phase of QS-0. I think you said three times the capacity, and what remains to be done before bringing that faster process line online, and then subsequently, what the steps are to get to that next expansion following that?
Jagdeep Singh (Co-Founder, CEO, and Chairman)
Absolutely. Yeah. This is an important question, and it's actually an area we're pretty excited about. So, as you might recall, we are already using a continuous flow process for our separator production for the films themselves. What we've been able to do is come up with a new process that we think is disruptively better.
That process can take tools that are essentially very similar to the equipment we already have that we're using today, and as we mentioned, triple the throughput. That particular, that's the first stage of this new process. That first stage we are in the process of deploying right now. The tools are in-house, they're being configured, and we currently plan to have production off of that line starting this year.
The exciting thing about this new process, though, is that there's a second stage where we can take the same general principle that we're using for this process and scale it up to even higher throughputs. To get those higher throughputs, there is new equipment that's required, and we're currently in the process of specifying the tool and process specs for that new equipment. That equipment we expect will be operational in-house and operational before the end of 2025, in time for our higher volume B sample production.
Jordan Levy (VP of Equity Research)
Thanks so much for taking my questions.
Jagdeep Singh (Co-Founder, CEO, and Chairman)
Absolutely. Thank you.
Operator (participant)
Thank you for your question. The next question is from the line of Winnie Dong with Deutsche Bank. Your line is now open.
Winnie Dong (Equity Research Analyst)
Hi. Thank you so much. My first question is, with the 24-layer A0 prototype now complete with, you know, one auto customer, Congrats on that. What's sort of like the next step there in terms of completing testing with the other customers before you can transition to the next phase, which is B sample? How far are you from completing this testing with the rest of OEM?
Jagdeep Singh (Co-Founder, CEO, and Chairman)
Yeah. You know, we are pleased, as we mentioned in the letter, with the results of the testing. You know, we pointed out that the, you know, the Coulombic efficiency, the capacity retention, you know, the fast charge tests, you know, all went well. Obviously, we pointed out that there's more to do on reliability. You know, no one expects an A sample prototype to be as reliable as a production, you know, serious, you know, commercially shipping part. But overall we're quite pleased with the results.
From here, what we are working on is taking the key items we mentioned as our goals in our last shareholder letter, so, the higher loading cathode, the more efficient packaging of the sample, the new films coming off our higher throughput film production line, integrating all those, all that functionality into our samples. Then obviously working on the reliability. That new functionality will be the basis of subsequent deliveries to our customers, and we expect to be working on that through when we have the B sample.
We expect to have the as we said before, lower volume B samples off of the lower throughput production lines sometime next year in 2024. The first B sample off of the higher throughput production lines before the end of 2025.
Winnie Dong (Equity Research Analyst)
Got it. That's very helpful. Second question is for Kevin. I was wondering if you can sort of add this, provide additional color on the internal cost initiative that you were alluding to in terms of CapEx and OpEx. Thank you.
Kevin Hettrich (CFO)
Thank you, Winnie. I would say that we've continued to make progress in the quarter, both on OpEx and CapEx areas. Not so much progress that we would change our guidance, but it is absolutely an area where our FP&A team is actively working with our cost center owners. There's a real commitment to being prudent with the strong balance sheet that we have, and that isn't lost on any of the leaders on the team.
Winnie Dong (Equity Research Analyst)
That's helpful. Thank you so much.
Jagdeep Singh (Co-Founder, CEO, and Chairman)
Thank you, Winnie.
Operator (participant)
Thank you for your question. The next question is from the line of Chris Snyder with UBS. Your line is now open.
Chris Snyder (Equity Research Analyst)
Thank you. Appreciate all the updates this afternoon. Again, on the 24-layer 5 amp-hour cell, you know, you guys said it could be used for both auto and consumer. Understand that there's, you know, better synergies with that and it would be maybe the fastest path to market. Does this suggest that the company is no longer pursuing the plan of scaling the cell up to kind of several dozen layers? Or is that still, you know, in the plans or just being kind of pushed right?
Jagdeep Singh (Co-Founder, CEO, and Chairman)
No. As we've mentioned, we over time plan to make both large and small cells. There's nothing inherent about our technology that causes us to not be able to do that. We just think that there's a lot of value to us, to our investors, to our customers, of getting a product to market as quickly as possible. Our goal here has been to say, you know, what can we do to take what we've already shipped, which of course is the A0 sample with 24 layers in a certain area, and commercialize that.
What this first shipment does for us is allows us to leverage the 24-layer count that we've already done, leverage the, you know, leverage area that's similar to what we've already shipped, and focus just on the things that I mentioned earlier that are part of our 23 goals. Add to that, to that cell, the higher loading cathode, which increases the energy density.
Add to that cell more efficient packaging, which also increases energy density. Add to that cell the new films coming off of the more scalable film production line, which increases the capacity and throughput of the production line. And then couple that with the improvements we're making on reliability. Those things combined, we believe, get us, to something that looks a lot more like a commercial product and does that in the fastest possible way.
The fact that that product, given the capacity that it has and the energy density that it has, appeals to both the automotive sector and the consumer sector is in some ways, you know, a bonus, because we can now take that same product and have a single track dual-purpose design. Recall that the 2170s that are used in obviously many of the best-selling EVs today, are about, have about approximately 4-5 amp hours of capacity. What we're talking about is about 5 amp hours of capacity.
It's in the same capacity range as today's 2170s, which obviously are, you know, high volume, cells. The energy density that we think we can get out of these 24 and 5 amp-hour cells, we think is higher than today's 2170s. And then that's not even taking into account the fact that we think we can get power density.
When you couple all these things together, you know, our conclusion is that, you know, you have a really compelling first product that can serve multiple markets that can be, you know, better than what is the alternatives that are available, and that can really optimize time to market without requiring additional development. We for sure plan to do, you know, larger cells over time.
This is simply a question of how we can get to market as quickly as possible.
Chris Snyder (Equity Research Analyst)
Thank you for all that, Khalid. I really appreciate it. Does the kind of the focus on the 24-layer 5 amp hour cell, does that have any impact or kind of on your existing commercial agreements with auto OEMs, who are maybe, you know, kind of... I don't know if there's an expectation there that these would be, you know, kind of larger cells, at that when those agreements were signed? Thank you.
Jagdeep Singh (Co-Founder, CEO, and Chairman)
Yeah. I think, you know, we're working with all of the players that we have already got agreements with. We're discussing with them the best fit of this design with the various programs that they have in their lineup. Again, because 5 amp hour cells are already used in high volume automotive applications today, you know, we believe there, you know, is gonna be no shortage of demand for this kind of cell that offers the combination of energy density and power density in this capacity range.
In the fullness of time, you know, we offer a broader portfolio, including both large and larger and, you know, small cells, in order to address the particular design approach that each OEM ends up choosing.
Chris Snyder (Equity Research Analyst)
Thank you.
Jagdeep Singh (Co-Founder, CEO, and Chairman)
Absolutely.
Operator (participant)
Thank you for your question. The next question is from the line of Ben Kallo with Baird. Your line is now open.
Ben Kallo (Managing Director and Senior Research Analyst)
Hey, Jagdeep. Hey, hey, Kevin. Thank you.
Jagdeep Singh (Co-Founder, CEO, and Chairman)
Hey, Ben.
Ben Kallo (Managing Director and Senior Research Analyst)
Have you guys, just maybe Kevin, have you done anything with ATM? I'm sorry if I missed this before.
Kevin Hettrich (CFO)
Ben, if I'm correct, your question was regarding use of the ATM in the quarter?
Ben Kallo (Managing Director and Senior Research Analyst)
Right.
Kevin Hettrich (CFO)
No, we did not use the ATM facility in this quarter.
Ben Kallo (Managing Director and Senior Research Analyst)
Jagdeep, just, I know this is all complicated to me at least, you know, different form factors, I think this question was asked before, like how do you think about, you know, going from cell to going into a product and the timeline that we can see developments there? I just mean just consumer electronics versus automotive going from a cell to a pack. Like how should we think about the milestones?
Jagdeep Singh (Co-Founder, CEO, and Chairman)
Yeah. I think, on the automotive side, there's a relatively, you know, well laid out methodology that they use, which is, you know, you go from an A sample to a B sample and so on to higher levels of maturity.
You know, you, in addition to maturity level, you know, B samples typically have higher volumes, and they use those higher volumes to make packs. To then use those packs to make, you know, actual test cars, and then finally to qualify those vehicles, and you'd have a series production, release. Those are all activities that we were working on with our various OEM partners. On the consumer side, it's a simpler process, 'cause there is no pack, so to speak.
The cell that you are building is, you know, gonna go into a device by itself. The nice thing about this 5 amp hour design is that corresponds to roughly 20 watt-hours. 20 watt-hours is on the higher end of what you would see even in a relatively, you know, large, you know, new model phone. If we were to do anything that's different in terms of that design for a consumer device, it would likely be making it somewhat smaller. Of course, that's always easier to make something smaller 'cause you know, it, everything gets simpler and easier.
I think that those are the differences in terms of the process flows for how the process to market works. The advantage of consumer, of course, is that not only is it a simpler process, as I just mentioned to you, there's no pack design to worry about, but the requirements at the cell level are also, in some ways, a lower bar. You don't need the same rates of power, so the C-rates are lower. You know, you don't need, you know, super high power to run a phone versus a car. You also don't need the same temperature performance.
Cars need to be rated down to, you know, between -20 and -30 degrees, whereas, you know, phones typically don't need to run that, operate at that, low temperature. The cycle lives are very different. You know, cars typically will need to run for, you know, hundreds of thousands of miles or, you know, 10+ years, whereas no phone, you know, are designed for 10 years. I wish they were, but, you know, typically the phones are, you know, designed to be obsolete within a few years. All that makes it easier for, the consumer, application, if you will, so which is why we refer to this as a, as a single track dual purpose design.
We're doing one design with this 24-layer cell, 5 amp hours, but we think it applies quite well to both, consumer and automotive in the sense that their application, their examples, of leading, you know, products in both sectors, that use cells, with capacities in that range.
Ben Kallo (Managing Director and Senior Research Analyst)
Thank you. In the past, you know, you've talked about compatibility with current manufacturing, you know, we continue to see more and more, you know, capacity announcement, at least, like, most every day in the United States. Do you think that that scale diminishes what you can offer to the automotive industry, I mean, cell and pack, you know, whomever you wanna pick, you know, over the next four or five years as you get to commercialization? Can you just remind us why, you know, you'll still be ahead of the curve? Thank you.
Jagdeep Singh (Co-Founder, CEO, and Chairman)
Yeah. Just to make sure I understand the question then, are you asking whether the new?
Ben Kallo (Managing Director and Senior Research Analyst)
Like I see-
Jagdeep Singh (Co-Founder, CEO, and Chairman)
production capacity?
Ben Kallo (Managing Director and Senior Research Analyst)
Whomever, I mean, like 35 GWh here and there...here and there.
Jagdeep Singh (Co-Founder, CEO, and Chairman)
Yeah.
Ben Kallo (Managing Director and Senior Research Analyst)
I'm wondering-
Jagdeep Singh (Co-Founder, CEO, and Chairman)
Got it.
Ben Kallo (Managing Director and Senior Research Analyst)
... you know, get out to 2025, 2026, 2027, like what your advantage is.
Jagdeep Singh (Co-Founder, CEO, and Chairman)
Oh, yeah. Yeah, yeah, absolutely. No, you're absolutely right that there have been a lot of announcements relative to new battery production capacity coming online, for sure. That actually is a testament to just the expected demand that the automakers see for EVs in their portfolio. You know, as much as we thought that EVs have been growing at a breakneck pace, it seems like there's no end in sight. This is just kind of, you know, appears to be continuing. You know, it is a massive market. You know, I don't know, 80, 100 million cars a year kind of a, you know, scale. To convert that whole market over to electrified powertrains, you know, will take a long time.
It'll take, you know, I don't know, it might take a, you know, a couple of decades to fully transition over. To satisfy that need, there's a need for a lot of batteries, you know, hundreds of gigawatt hours of capacity. We don't see that demand going away. I think relative to why, you know, our product is needed, the answer is that all of that capacity or substantially all the capacity that you mentioned is coming in the form of traditional lithium ion capacity. Which means the energy densities, the power densities, you know, the overall characteristics of those cells are very similar to what's available today.
We think that having a better cell, which is, you know, a cell that delivers better energy density, you know, better power performance, you know, That kind of cell will always have demand. What we're focused on doing really is getting this new technology to market in order to enable our customers to take advantage of those capabilities. We heard very clearly from, you know, effectively all the people we've spoken to, all the customers that we have partnerships with right now, that the value proposition we offer is very compelling. Our main challenge, as you know, is simply to get this to market.
We're focusing very heavily on trying to do everything we can to minimize time to market. That's where locking in on this 24-layer 5 amp-hour design we think is really a big step forward, 'cause it allows us to then have line of sight to a product, which allows us to order the tools that we need to mass produce the product, which allows us to get it to market. Of course, there will always be subsequent versions and subsequent factories that have more capacity. All those, all that additional capacity, all those follow-on products all run through the first product in the first factory.
If we don't do that, none of the follow-on is gonna happen, which is why we're laser-focused on just getting, you know, this 24 net 5 amp hour cell to market out of that first factory.
Ben Kallo (Managing Director and Senior Research Analyst)
Thank you.
Jagdeep Singh (Co-Founder, CEO, and Chairman)
Absolutely.
Operator (participant)
Thank you for your question. The next question is from the line of Mark Delaney with Goldman Sachs. Your line is now open.
Mark Delaney (Managing Director and Senior Equity Analyst)
Yeah. Good afternoon, thank you very much for taking the questions. First, I was hoping to better understand the commercialization timeline, which has been a point of emphasis in that letter, your remarks today. If I heard correctly, lower volume B samples of this 24-layer 5 amp-hour cell is next year. I think you said by the end of 2025 for the higher volume B samples, but maybe help us more importantly understand when you may be in serious production with that cell.
Jagdeep Singh (Co-Founder, CEO, and Chairman)
Yeah. It's obviously easier to be a little more precise about the near-term milestones, right? 'Cause just forecasting gets harder the further you get into the future. As I said, predictions are hard, especially about the future. I think in the near term, you know, we have the milestones that we've laid out for this year in our letter from last quarter. Those include, again, as a reminder, the higher loading cathodes, the more efficient packaging, the films coming off the new, more scalable production process, and then better reliability. Those are all things that are key requirements for any commercial product.
Those will also go into these initial low volume B samples that come off the lower throughput line in 2024. Having said that, we do have higher throughput tools that we will be ordering that will arrive and be installed by the end of 2025. We believe we can be making the first B samples off that higher throughput line before the end of 2025. The B samples are things that we directly control. To go from B to C, of course, now you have to get the automotive OEM involved. The timing of the C sample is really governed by the specific vehicle program and the customer that you're working with.
That becomes a little bit less precise. You know, our target is to be able to ramp up that facility, you know, at the end of 25 and then be able to ship, you know, past that point.
Mark Delaney (Managing Director and Senior Equity Analyst)
Okay. That's very helpful. Thanks for clarifying. You also emphasized the value proposition and you think there's some good balance with this product that you've selected to commercialize initially. Could you double-click a bit on that? You know, maybe, you know, one on the cost side, I mean, how do you think the cost of the product will compare versus, you know, established cells that are in high volume, you know, initially, but then, you know, of course, over time, you should be able to ramp up. You know, some of the benefits, right? You talked about the power. I mean, what would that mean for, you know, consumer in terms of charge times and maybe some of the other benefits your cell could enable?
Jagdeep Singh (Co-Founder, CEO, and Chairman)
Yeah. I mean, I think the core benefits of the cell are really what we've been showing all along, right? We've shown the fact that, you know, lithium-ion can be higher energy density because we don't have the anode. In our system, as you recall, you know, not only do we not have an anode, you know, but there's really zero lithium in our cell, in our anode as manufactured. We only manufacture a cathode and a separator, and bring them together as part of the assembly process. The anode forms in situ on the first charge.
That both gives us higher potential energy density, but it also gives us an opportunity to have some cost advantages because we don't need the anode material, whether it's carbon or silicon or lithium foil, and we also don't need the anode manufacturing line. Obviously, you can't compare a small scale line with a super high volume line in terms of, you know, economies of scale and cost and so on. I think at this stage, you know, when we have a production line, that will allow us to have all the details we need to then design, you know, larger lines and have more throughput.
I think at the end of the day, what we believe is, our system has some key advantages in terms of economics, and that's. I'm referring to the not needing an anode and not having an anode manufacturing line. We believe this industry has volumes that are so high that economies of scale can absolutely be achieved. If you couple those two things, we do believe that we can offer a compelling economic value proposition. The timing of that, of course, depends on the timing of the ramp.
Kevin Hettrich (CFO)
You know, one other thing I could add just to connect the dots with the shareholder letter is, to maintain that, to capture savings there on the components that we eliminate, we of course have to manufacture our separator at scale and goaling throughput, that would fit with those targets. That's why this disruptive, this first stage of this disruptive separator process is so exciting. That equipment's being installed now, and as we work towards spec-ing out equipment for the second stage. That's a development that we think is positive towards that product gross margin direction.
Mark Delaney (Managing Director and Senior Equity Analyst)
That's all very helpful. If I could just ask one last one. You spoke about amp hours of the cells. But as we think about overall storage capacity at the pack level, you know, I think we need to think about how big the cells are versus 2170 and how densely they could be packaged.
Maybe it's too soon to kinda have visibility into pack level density, but, you know, if you could, you alluded to perhaps being better on that metric, but if you could talk in a bit more depth on, you know, the overall density potential of your cells versus what's out there today, that'd be helpful. Thank you.
Jagdeep Singh (Co-Founder, CEO, and Chairman)
Yeah. Yeah. Happy to. It's a good question. Actually, there are two points I'll make real quick on that front. One is that the energy density at the cell level, right, we believe will be higher with the QuantumScape solid-state lithium-metal technology than conventional 2170 cells. Secondly, at the pack level, because the cells we're shipping will be in a prismatic format, prismatic cells pack better, right? If you have cylindrical cells, imagine taking, you know, a bunch of water bottles and trying to pack them densely, you will have dead space between the bottles that you cannot get rid of. No matter how densely you try to pack, there will be loss of space.
I think the geometric calculations are on the order of 9% of the space is guaranteed to be lost to void space. Whereas with the prismatic cells, in a bunch of, you know, rectangular, you know, blocks that you're packing, you can pack them up with zero wasted space into a pack. The combination of high energy density at the cell level and more efficient packing because of the prismatic nature of the cell at the pack level, actually give you, we think a compelling value proposition on energy density.
Mark Delaney (Managing Director and Senior Equity Analyst)
Thank you.
Jagdeep Singh (Co-Founder, CEO, and Chairman)
Absolutely.
Operator (participant)
Thank you for your question. There are currently no further questions registered, so as a reminder, it is star one on your telephone keypad. There are no additional questions waiting at this time, so I'll pass the conference back to the management team for any closing remarks.
Jagdeep Singh (Co-Founder, CEO, and Chairman)
Well, again, I'd like to thank you all for joining today's call. In particular, I'd like to thank our investors for their continued support, our customers for their ongoing commitment to bringing our technology to market, and of course, the entire QuantumScape team for the endless passion and dedication that drives our progress.