QuantumScape - Q4 2022
February 15, 2023
Transcript
Moderator (participant)
Good afternoon, and thank you for attending today's QuantumScape Corporation fourth quarter 2022 earnings call. My name is Jason, and I'll be the moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you'd like to ask a question, please press star 1 on your telephone keypad. I'll now pass the conference over to our host, John Saager.
John Saager (Head of Investor Relations)
Thank you, operator. Good afternoon, and thank you to everyone for joining QuantumScape's fourth quarter 2022 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, Chairman, and CEO)
Thank you, John. In 2022, we made significant advances in our technology, encountered and overcame obstacles, and ultimately achieved our major goal for the year. I'd like to briefly recap our key results in 2022 and provide an overview of our plans for 2023. Our most important goal for 2022 was to ship our first 24-Layer A0 prototype battery cells to customers.
To achieve this, we needed to incorporate several improvements into our system, from separator film and cathode production to cell assembly, focused on the quality, consistency and throughput of our designs and processes. We're pleased that the team successfully incorporated these improvements and rallied to meet our target of shipping 24-Layer A0 cells to customers by Year-End. We see this as a demonstration of the team's ability to overcome adversity and deliver on our goals.
While specific customer testing protocols and results can't be disclosed, we can report that generally, most cells have performed well on initial testing, including fast charge and early cycle capacity retention. However, we need to continue to improve cell reliability as we move from prototype to product.
This is a key focus area for 2023, and we expect that as we make progress on the quality and consistency of our materials and processes, reliability will continue its upward trajectory. We believe this 24-Layer A0 milestone represents a significant step forward, but more work remains to turn our technology into a commercial product. I'll discuss some of these remaining steps when I lay out our 2023 goals.
The A0 prototypes also incorporate our proprietary cell architecture, a hybrid between pouch and prismatic cell formats designed to accommodate the volume expansion and contraction that occurs during the charge and discharge of lithium metal cells. We shared the first images of this new architecture in our shareholder letter and intend to share more details on this architecture later in the year.
In addition to our cell development progress, in 2022 we also focused on scaling up cell production. 1 goal was to continue the build-out of our QS-0 Pre-Pilot production line by taking delivery of a majority of the necessary equipment. We've merged our Phase 2 engineering line with QS-0 and have now received a majority of the tools necessary for initial lower volume production on this consolidated QS-0 line.
Our final key goal for the year was to scale up production of our ceramic solid electrolyte separator to a peak level of 8,000 weekly film starts. We achieved this goal, which demonstrates progress in process development, equipment qualification, and manufacturing capability. I'd like to briefly discuss our customer engagement. Over 2022, we continued to see strong interest in next generation batteries for EVs from a variety of automotive OEMs.
As we previously reported, this culminated in sampling agreements with 3 more automakers, including a top 10 automotive OEM by global revenue and a Pure-Play EV OEM. For the consumer electronics industry, we shipped dozens of single-layer pouch cells for customer testing with 0 externally applied pressure. We're pleased to report that the sister cells from the sampling campaign we reported on last quarter have now surpassed 800 cycles.
We believe this exceeds the requirements for many consumer electronics applications. I'd like to lay out our goals for 2023. Beyond A0 prototype shipments, we plan to focus on subsequent generations of prototype samples, incorporating advances in cell functionality, process, and reliability, as well as bringing online the manufacturing capability of our consolidated QS-0 line. Our goals for the year are focused on these 4 items.
Our first goal is to increase cathode capacity loading to approximately 5 milliamp hours per centimeter squared. As in conventional Lithium-Ion batteries, our cathode can be optimized either for better energy density or higher rates of power. We believe our current loading of approximately 3 milliamp hours per centimeter squared would be in the range required for a power cell.
To optimize for energy density, we're targeting a capacity loading in the range of approximately 5 milliamp hours per centimeter squared. This goal requires addressing several technical challenges, including coating thicker cathode electrodes while maintaining quality. Calendering the cathodes to the necessary thickness, optimizing cathode microstructure, and ensuring good catholyte interface with active material.
Our second goal is to improve the efficiency of our cell packaging. While the active materials of the battery set a ceiling on how energy-dense a battery can be, the ratio between active materials and inactive materials, the packaging efficiency, determines the final energy density. We're targeting improvements on that front this year on our path to commercialization. Our third goal for 2023, as we move from prototypes to commercial products, is to improve the quality and consistency of materials and processes.
Some core drivers of quality and consistency in our manufacturing process include increased precision through automation and control, quality of input materials, and particle reduction across our process flow. We plan to implement such process improvements and controls, which we believe will ultimately lead to higher reliability.
Finally, and most exciting, our fourth goal is to deploy a new fast separator production process that's significantly faster than our current baseline. In its initial implementation, we expect it can support up to 3 times more throughput using similar equipment to our current process.
When this new process comes online, we expect our consolidated QS-0 line will be ready to begin initial lower volume production. We believe that deploying this fast process in 2023 is an important step on our path to mass production in the coming years.
With the focus on these four key goals, we aim to make substantial progress in 2023 towards our ultimate target of product commercialization. On that note, I'd like to say a word about our strategic outlook. In our letter to shareholders last year, we laid out four key premises that underlie our commercial opportunity.
First, battery electric powertrains represent the future of transportation. Second, anode-free lithium metal batteries have the potential to deliver compelling improvements over current Lithium-Ion batteries. Third, we can scale up our cells to many layers. Fourth, we can mass manufacture our cells. We continue to believe that the first 2 points are well established, and our work in 2022 was focused on the latter 2 points.
Beginning shipments of 24-Layer A0 cells demonstrated that it's possible to scale up our cell layer count to the multi-amp hour scale, a range we believe is relevant for a variety of applications. By hitting our weekly film starts goal and taking delivery of equipment for our consolidated QS-0 line, we made progress towards our Scale-U
p goals. Of course, as I mentioned earlier, much work remains to be done. However, our results over the past 2 years have demonstrated that when difficult problems need solving, our team consistently rises to the occasion. In the months and years ahead, new and difficult problems are sure to arise. When that happens, we're confident that we'll tackle these new challenges in the same way we solved the previous ones, with teamwork, stubborn determination, and grit.
Thank you for your continued support. We look forward to sharing more on our progress over the year ahead. With that, I'll hand things over to Kevin.
Kevin Hettrich (CFO)
Thank you, Jagdeep. In the fourth quarter, our GAAP operating expenses were $113 million, and for full year 2022 were $421 million. Our GAAP net loss for the quarter was $109 million, and for full year 2022 was $412 million.
This level of spend was in line with our expectations entering the quarter. Cash operating expenses, defined as operating expenses less Stock-Based compensation and depreciation, were $70 million for the quarter and $266 million for the year, in line with previous guidance of $225 million-$275 million. CapEx in the fourth quarter was approximately $38 million, and for full year 2022 was $159 million, below the guidance range of $175 million-$225 million.
Drivers of the variance to guidance include deliberate postponement to further develop process and hardware specifications, cancellation of certain intermediate stage separator production equipment to focus on our new fast separator production process, and savings captured through the incorporation of Phase 2 engineering line equipment into our consolidated pre-production QS-0 line. Q4 CapEx was primarily directed toward facility investments, our medium-scale continuous film, and cell imaging equipment.
As we enter 2023, we continue to try to maximize capital efficiency in our ongoing build-out of the consolidated QS-0 line, as well as to reduce our operating expenses. For full year 2023, we see capital expenditures of between $100 million and $150 million, the majority of which will be spent on our consolidated QS-0 line. On the operating expenses side, we've reduced spend where possible across the organization.
Reductions came primarily through optimizing non-personnel resources such as services, materials, and utility spend, as well as rebalancing personnel. For 2023, we see cash operating expenses between $225 million and $275 million, the midpoint of which is approximately 10% below our Q4 2022 cash OpEx run rate. As a result of these cost-saving initiatives, we believe our cash runway now extends into the second half of 2025, an increase from prior guidance of through the end of 2024.
Historically, we focused on maintaining a strong balance sheet, and we intend to continue this by identifying new opportunities to reduce spending and by being strategic about opportunities to raise capital to further extend our cash runway. With respect to cash, we spent $101 million on operations and CapEx in the fourth quarter and ended 2022 with $1.08 billion in liquidity above previous guidance of over $1 billion. With that, I'll pass it over to you, John.
John Saager (Head of Investor Relations)
Thanks, Kevin. We'll begin today's Q&A portion with a few questions we've received from investors on the Say app or that I believe investors would otherwise be interested in. Our first 2 questions are for Jagdeep. I'm summarizing several similar questions from investors here, but can you give more context on the A zero delivery? Primarily, what's the significance of that milestone, and what additional work needs to be done from here?
Jagdeep Singh (Co-Founder, Chairman, and CEO)
Sure, John. The significance of these first A0 deliveries is that they demonstrate the core functionality of our technology and our ability to make Multi-Amp hour cells. We've previously shared some compelling data on the performance of our technology at smaller scales, but we think the Multi-Amp hour scale is a significant milestone because capacity in this range is commercially relevant for a variety of applications, including both automotive and consumer electronics.
In terms of what's left to do, as we report in our letter, we're now focused on 2 important areas. 1 is a set of activities relating to increasing energy density, including thicker cathodes and improved packaging efficiency, and the other is continued work on production quality and consistency, leading to improved reliability.
Finally, we're also excited about and plan to work on deploying our new fast separator production process, about which we'll plan on sharing more information at a later date.
John Saager (Head of Investor Relations)
Okay, great. How does the delivery of the A0 affect your timeline to commercialization?
Jagdeep Singh (Co-Founder, Chairman, and CEO)
Regarding the commercialization timeline, we haven't provided any updated communications on this front since our last earnings call. The main point I'd like to emphasize here is that the path to all subsequent samples, including B samples and C samples, runs through our 2023 goals. In other words, those samples all require we increase cathode electrode thickness, improve packaging efficiency, incorporate the fast film production process, and improve quality consistency, leading to improved reliability.
John Saager (Head of Investor Relations)
Okay. Our next question is for Kevin. Turning our attention to the finances for a moment now. You mentioned the extension of your cash runway into the second half of 2025. Can you help explain in more detail what the drivers of these cost savings are?
Kevin Hettrich (CFO)
Yes, John. We found savings in a number of areas. Optimization of Non-Personnel OpEx savings areas, including services, materials, and utility spend. CapEx savings resulted predominantly from the merger of the Phase 2 engineering line into a consolidated QS-0 Pre-Production line, as well as savings associated with the new fast separator process described in the letter. As an organization, we have and always are going to want to be as lean and efficient as possible while keeping in mind our development timeline, which is, of course, our highest priority.
This lean and efficient focus by the team contributed to our year-end liquidity of about $1.08 billion, which was in excess of the $1 billion guidance. As you mentioned, forecasting runway now into the second half of 2025, an improvement from the end of 2024, that's something that we're pretty encouraged with.
John Saager (Head of Investor Relations)
Okay. Thanks, Kevin. Turning back to you, Jagdeep. Can you talk more about the new separator process that you disclosed in the shareholder letter?
Jagdeep Singh (Co-Founder, Chairman, and CEO)
Sure, John. We've been working on this for some time now as an advanced development project, 1 that we saw as high risk, but high return if it worked. We've seen some very encouraging data from this process on small scale equipment, and believe this will allow us to produce significantly faster and with a higher level of quality and consistency. Based on this data, we've chosen to focus on this faster process as our primary Scale-Up pathway.
In the fullness of time, i.e., for commercial production, we think this process can allow us to scale over an order of magnitude greater throughput than our current process. We also believe that we can use this new process with a modified version of our current film production equipment and get about a 3x improvement in throughput in the near term as well.
Deployment of this near-term version of the process is 1 of our key 2023 goals. Of course, we look forward to sharing progress on future calls.
John Saager (Head of Investor Relations)
Okay, great. We also got a couple of questions in from Jose Asumendi of JP Morgan. Jose's first question is a little bit longer term in nature. He asks: With a 3-5-Year view, can you remind us of the different gates and stages that you plan to go through from the current 24-Layer A0 prototype to final prototypes with the OEMs?
Jagdeep Singh (Co-Founder, Chairman, and CEO)
Sure. As we've said before, the typical automotive stage gates include A samples, which are typically demonstrations of the core capabilities of the product, followed by B and C samples, which typically focus on increasing manufacturing maturity. As I said earlier, the important point I emphasize is that the road to all these subsequent milestones leads through our 2023 goals.
Adding functionality that improves cell level energy density, such as thicker cathodes, more efficient packaging, as well as improved reliability through better quality and consistency, as well as the new fast separator process that I mentioned earlier. Those things form the foundation for both more advanced A samples as well as subsequent B and C samples and, of course, commercial products.
John Saager (Head of Investor Relations)
Okay. Jose's second question is for you, Kevin. Can you elaborate around the topic of protecting the balance sheet, remaining cash focused, and protecting the balance sheet until 2025?
Kevin Hettrich (CFO)
As I mentioned earlier, we want to be as lean and efficient as possible while keeping in mind our development timeline, which is, of course, our highest priority. I believe we struck the right balance in our 2023 plan shared today. We're able to resource the 2023 goals laid out in the letter
Jagdeep Singh (Co-Founder, Chairman, and CEO)
While also forecasting an extension in cash runway. Our prior guidance was through the end of 2024, we're now forecasting cash runway into the second half of 2025. Regarding the question on the protection of our balance sheet, we intend to continue this by identifying new opportunities to reduce spending and by being strategic about opportunities to raise capital to further extend our cash runway.
Okay. Thanks so much, guys. We're now ready to begin the Q&A portion of today's call. Operator, please open the line up for questions.
Moderator (participant)
If you would like to ask a question, please press star followed by 1 on your telephone keypad. If for any reason you'd like to remove that question, please press star followed by 2. Again, to ask a question, it is star 1. Our first question is from Jordan Levy with Truist Securities. Your line is now open.
Jordan Levy (Vice President, Equity Research Analyst)
Afternoon, all, and thanks for taking my question. Appreciate the update. I wanted to just see if I could start asking, to the extent that you can talk about it on your thoughts in the consumer electronics space and process, knowing that that's probably sort of a shorter cycle sector than the auto sector and how you're thinking about approaching that space.
Jagdeep Singh (Co-Founder, Chairman, and CEO)
Yeah. No, we think that's a very interesting space for us. Obviously, we've been very focused on automotive. You know, there's a longer cycle with automotive product development, so it was important for us to engage there early.
We feel good about our engagements in that space. As we've mentioned on previous calls, we are seeing a fair bit of interest from the consumer sector. We also mentioned in this letter as well as previous letters that we've provided single layer cells to the consumer electronic sector to be tested under zero applied pressure. We mentioned in this letter that those cells are performing well. You know, we've seen...
We've published data from the sister cells that show they've exceeded 800 cycles now at zero applied pressure, which we're really excited about. We keep talking about zero applied pressure because that is really important in the consumer sector. If you have a battery that requires pressure application apparatus, that's gonna take up volume and space in the phone or in the consumer device, which there isn't that much of. Just having a high energy density cell is not enough.
You really wanna have that cell operate without a lot of external pressure. The lowest pressure you can get to is of course, no applied pressure, so you only have the 1 ambient atmospheric pressure on the cell.
To our knowledge, we are the only, you know, Non-LiPON based, you know, non-micro battery style, lithium metal, cell, that has been shown to operate with 0 applied pressure. We're excited about those results. Our, the consumer partners that we're engaged with, you know, share that excitement. As you point out, it's a shorter cycle to get to market. We expect to continue to move those engagements forward, and we'll report progress as we have progress to report.
Jordan Levy (Vice President, Equity Research Analyst)
Great. Thanks for that. Then just a quick Follow-Up. Any commentary you could give as it relates to the stationary storage side of things? It seems like you're working kind of on the power cell side of it, but that sort of goes to kind of the other side of it.
Jagdeep Singh (Co-Founder, Chairman, and CEO)
Yeah. I think, we mentioned, you know, last year that we, you know, have seen interest from stationary storage. You know, we announced, you know, 1, early, you know, agreement in that space. You know, the feedback we're hearing from that space is that the, performance and specifications for cells that meet the requirements of the automotive sector, are good for that sector as well, for stationary storage as well. As we get, further along in terms of our, production, capacities, you know, we fully intend to explore that market opportunity as well.
I think the main point that I think comes out of your questions, which is a really good 1, is that if you have a better battery that has, you know, better characteristics in terms of energy density, in terms of, power capability, you know, perhaps safety, these are all things that resonate across the full spectrum of applications from automotive to consumer, to, stationary storage.
The question of which ones we go after, that question is gonna be more based on what makes the most business sense for us rather than, you know, the fundamental, applicability of our technology.
Jordan Levy (Vice President, Equity Research Analyst)
Thanks so much.
Jagdeep Singh (Co-Founder, Chairman, and CEO)
Of course.
Moderator (participant)
Our next question comes from Gabe Daoud with Cowen. Your line is now open.
Gabe Daoud (Managing Director, Senior Equity Research Analyst)
Hey. Afternoon, guys. thanks for all the prepared remarks. Jagdeep was maybe hoping to, you know, to the extent you could share, get a bit more color on the initial A sample, the A0. Is there an update on cycle life performance? I think as of last quarter, you had disclosed that it achieved about 100 cycles or so.
Similarly, your comments around your OEM partners, being pleased, I guess, with quote, unquote, "early cycle capacity retention." Maybe could you, could you define early cycle capacity retention and then provide an update on cycle life if there is 1?
Jagdeep Singh (Co-Founder, Chairman, and CEO)
Yeah. We didn't say anything on the customer, you know, specific testing. We actually obviously can't comment on customer specific tests. Those tend to be, you know, provided to the customers themselves.
What, you know, what we did say is that, you know, the really the purpose of the A0 samples is to demonstrate the core functionality of the technology, and our ability to make multi amp power cells. These samples did that. You know, we've actually been pleased with the performance. You know, we don't expect these first A0 samples to have the same level of reliability as a commercial product.
We've seen, as we mentioned to you, mentioned in the letter, good performance on both fast charge and early capacity retention. When we say early capacity retention, what we mean is the shape of the capacity retention curve.
Remember that 1 of the ways that batteries hit end of life is that with every charge discharge cycle, you lose a little bit of lithium to side reactions. The capacity that remains in the battery, decreases with every charge and discharge cycle. Eventually when it gets to 80% of the original capacity, the cell is deemed to be at end of life.
What we were referring to on the letter is that the shape of that capacity retention curve or capacity degradation curve, you know, was quite good. In fact, was similar to what we've seen in previous results that we've published.
That's what we meant by early capacity retention. Then, what we plan to do is, you know, as I mentioned on the letter as well under the call, this coming year is add a few key bits of functionality that we think are gonna be very important. 1 set of features is gonna be related to energy density. We mentioned the thicker cathode, we mentioned the more efficient packaging.
Those are all things that will allow the energy density of the actual prototype cell to approach the energy density that we believe the system is capable of. Then the other parallel track to that is improved reliability.
Our path to improved reliability is very simple. It comes down to basically improving the quality and consistency of our materials and processes. In our system, we believe that as we get, you know, higher and higher quality in our materials and processes, that directly translates to better reliability. That's a quick summary of both the testing and our plans going forward this year.
Gabe Daoud (Managing Director, Senior Equity Research Analyst)
Thanks, Jagdeep. Super helpful. I guess on that note, just hitting on the cathode loading going to 5 milliamp hour. I think in 1 of your previous slides you had showed the QS power cell and the QS energy cell, both of which had pretty good or you know, attractive fast charge capabilities.
I guess the question is, going to the energy cell and the 5 milliamp hour to bump up energy density, would you still expect to have that, you know, call it 15 minutes or so, charge time for 10% to 80%, for the 10% to 80% charge window? Would that still be fair? Is that the 950 or so watt-hours per liter energy, density target on the energy cell? Is that still fair?
Jagdeep Singh (Co-Founder, Chairman, and CEO)
Yeah. I think the long-term numbers that we've shared in the slide that you're referring to, are still our targets. You know, we expect the energy cell to be, you know, somewhere in the vicinity of 900 to 1,000 watt-hours per liter, as we've mentioned before. We do think that cell should still be able to charge more quickly than conventional lithium-ion batteries. Yeah, we think getting something in the, you know, 15-ish minute range, is not unrealistic for that cell for the reason that we mentioned before, which is that cell does not...
Even though it's an energy cell with a thick cathode, it doesn't have an anode, so there's no extra distance for the lithium ions to have to traverse in the anode. We can basically use the ion transport length of a conventional Lithium-Ion battery, which includes both anode and cathode distance, and apply that purely to the cathode so that, you know, we can either get thicker cathodes, more thick cathodes than conventional cells or, you know, have those cathodes be able to charge faster than conventional cells. The power cell, we believe, will be could potentially get even faster than that.
Of course, at the expense of somewhat lower energy density, because as you point out to get the power cathode, you have somewhat thinner cathode with a somewhat higher amount of electrolytes, so basically lower cathode mass loading, which gives you both the higher power and lower lower energy density.
Effectively, the short answer to your question is, yeah, we do believe that our energy cell should still be compelling on the power front, and our power cell will also have an interesting level of energy density.
Gabe Daoud (Managing Director, Senior Equity Research Analyst)
Great. Thanks, Jagdeep.
Jagdeep Singh (Co-Founder, Chairman, and CEO)
Absolutely.
Moderator (participant)
Our next question is from Winnie Dong with Deutsche Bank. Your line is now open.
Winnie Dong (Equity Research Analyst)
Hi. Thank you so much for taking my question. I wanted to elaborate a little bit more on the cathode capacity loading improvement. How does that change your In-Process A sample testing right now with customer? Do you then anticipate that is a improvement, that's for B sample and beyond? I just want to clarify that. That's my first question. Thanks.
Jagdeep Singh (Co-Founder, Chairman, and CEO)
Yeah. Yeah. As we've said before, we see the A sample as really being a phase. There's a series of deliveries we'll make under the A sample umbrella, and subsequent versions of that sample will have this new higher mass loading, higher capacity loading cathode, as well as the more efficient packaging. That will then lead to, you know, to B and C samples subsequently.
Winnie Dong (Equity Research Analyst)
Got it. Then, in terms of the series of A sample prototypes that you'll be, you know, continuing to deliver this year, how long do you anticipate this sort of to last? I think previous quarters you've alluded to, you know, B sample and C sample each being around 18 months or so, which, you know, puts us into perhaps the timeframe of 2026 or so.
With A sample sort of rolling out this year as well, you know, can you paint a picture for us in terms of the timeline for, you know, ultimate commercialization?
Jagdeep Singh (Co-Founder, Chairman, and CEO)
Yeah. We haven't said anything, we haven't provided any new communications relative to timeline other than what we said on the last earnings call. I think the main thing that we I think are pointing out on this call is that when you look at the B and C samples and even the commercial product, some of the key requirements for those subsequent samples and products are the key things we're focused on in 2023.
Whether it's the B or the C sample or more advanced versions of the A even or the product, they all need more efficient packaging. They all need the ability to have these more energy-dense cathodes or higher capacity loading cathodes.
In fact, they all would need this, we think this new fast film production process that we've also alluded to on this call. We think those are all really key things. They all need, you know, obviously increasing reliability as you go from prototype to product. Those are all things that are a key part of our goals for this year.
Regardless of, of which sample, you know, we want to focus on in the future, we have to get these things done this year. That's kinda why this is an important year for us. We just wanna make sure that we execute on these key goals 'cause they will form the foundation for all those subsequent milestones.
Winnie Dong (Equity Research Analyst)
Got it. Thank you so much. If I may just squeeze in 1 more, on the topic of improving quality and consistency, could you maybe elaborate for us sort of like the steps that you're taking to achieve that goal for this year? Is it more perhaps more material vertical integration? Is it more automation of the equipment? Any details on that? Thank you.
Jagdeep Singh (Co-Founder, Chairman, and CEO)
Absolutely. You know, there's a lot of things that can lead to quality that we wanna improve. Things like particles, for example. You know, if you have any kind of, you know, if you have, for example, a large particle sitting between the layers of your cells, that could eventually lead to issues.
If you have, for example, you know, tabs that are not welded properly as you bring together all the different layers in the cell, that could lead to issues. You know, there is just a lot of things that revolve around incoming materials quality.
You know, if the materials we're getting in have defects or process control, if the process itself is not operating within your statistical process control limits, for example, the automation which allows you to have more precision in how you assemble and align the various layers. Those are all areas that are potentially contributors to quality and consistency. Those are the kinds of things that we plan to tighten up this year to ensure better and better quality.
I think the key point I would emphasize is that other industries, including some of the ones we referenced in the letter, like the multilayer ceramic capacitor industry, as well as the Lithium-Ion battery industry, have already shown the ability to control those parameters quite well. You know, we don't need to reinvent the wheel there.
We just plan on, you know, having a disciplined execution process, a disciplined manufacturing team that puts in place those controls, those processes, that level of automated precision, that ensures that we don't have extraneous particles floating around, you know, or that we don't have, you know, imprecise placement, or we don't have, you know, bad tab welds and those kinds of things.
Those are all things that are doable. We just need to implement an organization that has the discipline to repeatedly execute on that front.
Winnie Dong (Equity Research Analyst)
Great. Thank you. I appreciate all the response.
Jagdeep Singh (Co-Founder, Chairman, and CEO)
Absolutely.
Moderator (participant)
Our next question comes from Chris Snyder with UBS. Your line is now open.
Chris Snyder (Equity Research Analyst)
Thank you. I understand, you cannot share, specific customer, testing, protocols and results, but could you provide some general feedback, that you got from customers, post-delivery of the A0 sample?
Jagdeep Singh (Co-Founder, Chairman, and CEO)
I can reiterate what we said earlier, which is that, you know, we feel that, you know, most of the samples we provided have performed well. We've mentioned some of the specific tests that were done, including, you know, fast charge, some of the early capacity retention curves and so on. I can also point out that, you know, 1 of the areas that we wanna keep improving is, in fact, the reliability of these cells.
That's why, you know, we spend a lot of time talking about things we plan to do this year to improve quality and consistency, all of the process automation and, you know, particle reduction and so on. Other than that, there's not a lot we can say about the specifics.
These are customer-specific protocols and results. I think, you know, from our standpoint, we can say, you know, we're actually, you know, pleased with where we are, and we think we're well positioned to go from here to the next phase, which involves adding this additional functionality, that we talked about earlier today.
Chris Snyder (Equity Research Analyst)
Thank you. I appreciate that. I guess maybe just following up on some of the prior questioning on the pathway from the A0 sample to the B sample. You know, I guess how many generations of the A sample should we expect? Will we get updates on these as the samples progress? Kind of another 1 on that same line, are the subsequent generations of A samples customer specific in that, like, an A sample to customer X would be different than the A sample to customer Y, or is it uniform across all customers?
Jagdeep Singh (Co-Founder, Chairman, and CEO)
That's a good question. First of all, let me work backwards from the C sample. Obviously, the C sample is going to be very customer-specific because the definition of a C sample is that it's a product that is a sample made off an actual production line that's gonna go into series production.
And you can't do that until you've got a customer that's told you they're planning on using that sample, that type of sample in an actual product, right? That will be Customer-Specific. The B sample is likely also to be customer-specific, maybe less so than the C sample, but because the B sample is used to make test vehicles, that's also gonna have a customer-specific element to it.
The A sample is typically the most technology-oriented of the samples 'cause it's a demonstration of the core capabilities of the product. Even there, different customers have different things they're most interested in. Yes, you could even with the A sample see, you know, 1 customer have a certain set of functionality they care more about than other functionality or other customers.
There will be some customer by customer variance of all those samples. Relative to, will we share progress with, you know, with you on all those samples, to the extent those are meaningful milestones, we absolutely will. To the extent that they're not meaningful, you know, we wouldn't need to.
We try to be more transparent rather than less transparent, so I would expect that we would found sharing, you know, updates on any meaningful customer milestones.
Chris Snyder (Equity Research Analyst)
I appreciate that. If I could just squeeze a final quick 1 in on that on the A sample and B sample, you know, in the past, when you guys have kinda said a roughly 18 months kind of timeline between A sample and B sample, does that clock start with the A0 delivery, or does that clock start when you deliver the last generation of the A sample? Thank you.
Jagdeep Singh (Co-Founder, Chairman, and CEO)
I think that, you know, the 18-month windows that we provided earlier were kinda approximations. I think, if you look at it as an approximation, then, I think whether you start with A0 or some subsequent version of it, you're still roughly in the same timeframe. I don't think we wanna be overly precise. I think it's hard to be overly precise about, you know, milestones that are years away.
The main point we wanted to provide was that, or make on that front is that, there is a series of progressively more mature samples that we need to provide to the automotive sector. The first of those milestones, which is the A sample phase, is really focused on some core functionality and demonstration of capability.
The next version, which is the B sample phase, is focused on production processes, although it could be on smaller, lower volume versions of the tools. The final phase is the C sample, which is focused on the functionality and the right process on the actual production tooling. We wanna provide that rough range, so people have a sense, you know, of roughly what we're talking about. It's not, you know, a 2-Month delta, it's not a 10-Year delta, but it's something in the range that we, that we had mentioned. You know, I think, you know, pretty much remains the case.
Chris Snyder (Equity Research Analyst)
appreciate all that. Thank you, Javi.
Jagdeep Singh (Co-Founder, Chairman, and CEO)
Absolutely.
Moderator (participant)
Our next question is from Mark Delaney with Goldman Sachs. Your line is now open.
Mark Delaney (Managing Director and Senior Equity Analyst)
Yes, good afternoon. Thank you very much for taking the questions, and thank you for all the details in the shareholder letter. My first question was a Follow-Up on that same topic and just trying to better understand in more depth, if I could please. What's the difference between an A0 sample and an A sample, and any sort of idea of how many A samples we should be expecting?
Jagdeep Singh (Co-Founder, Chairman, and CEO)
Well, I mean, I think that, you know, we laid out in the letter some of the key things we're working on this year, right? We said that what the A0 has is, you know, a multi amp-hour capability, 24 layers, and it demonstrates the core capability of the product. It's a Lithium metal anode, Solid-State separator, zero lithium to start with cell. All that can be tested by the customer, the customers, you know, even tested, as we mentioned earlier, fast charging and capacity retention and so on.
The things we're working on this year, which include, you know, thicker cathodes, more energy dense packaging, you know, later in the year, the fast film production process, those are all features that will make their way into subsequent releases. You know, that you might imagine those going into a second generation of A sample, and they will also make their way into the B sample and the C sample. I think, you know, the key for the A sample really is there new functionality that's going into the cell?
And the goals we laid out this year indicate a number of areas where there's key functionality we plan to roll in. You can imagine probably at least 1 further generation of A sample. Subsequent to that, we think we will have a lot of the core functionality in, and we will focus more on getting some of the manufacturing maturity up for the B and C samples.
Mark Delaney (Managing Director and Senior Equity Analyst)
That's helpful. Thank you for the clarification there. My other question was on some of the optimization efforts the company spoke about in the shareholder letter and the prepared remarks. 1 of the things that was mentioned was rebalancing personnel. I was wondering perhaps you could elaborate specifically on that and any more color you can share there. Thank you.
Kevin Hettrich (CFO)
Yeah, Mark, that was predominantly a consolidation and transfer of teams within the organization to better focus on the 23 goals. This did include a small approximately 3% reduction in the team. As part of our annual planning effort, we did eliminate positions not aligned to near-term goals. There wasn't a net reduction in manufacturing operations. In fact, we had a small increase to personnel assigned to manufacturing operations.
Mark Delaney (Managing Director and Senior Equity Analyst)
Understood. Thank you.
Moderator (participant)
There are no further questions, so I'll pass the call back over to the management team for closing remarks.
Jagdeep Singh (Co-Founder, Chairman, and CEO)
Yes. I wanna just thank you all for joining today's call. I'd like to thank our investors for their ongoing support of our mission, our customers for their commitment to helping us get this technology to market, of course, our amazing team for their incredibly dedicated efforts to overcome the hard problems associated with bringing a groundbreaking new technology to market. We look forward to reporting on further progress in the coming quarters.