Good day, and welcome to QuantumScape's First Quarter 2021 Earnings Conference Call. John Saager, QuantumScape's Head of Investor Relations, you may begin your conference.

Thank you, operator. Good afternoon, and thank you to everyone for joining QuantumScape's first quarter 2021 earnings conference 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 our Safe Harbor provision for forward-looking statements that is posted on our website and as part of our quarterly update. The Safe Harbor provision identifies risk factors that may cause actual results to differ materially from the content of our forward-looking statement for the reasons that we cite in our 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 Singh.

Thanks, John. Welcome to our earnings call for the first quarter of 2021. Earlier today, we published a letter to our shareholders, summarizing the major developments from the last quarter. I won't repeat all of the contents of the letter here, but I would like to call your attention to a couple of key highlights. At the end of March, we completed our VW milestone, which required that we deliver to VW for testing in their labs in Germany, cells of a specific form factor and performance level. The form factor consisted of near production-intent separator thickness and area, and the performance level requires that the cells operate at predetermined rates of power and temperatures, for a specified number of cycles. We were pleased that we successfully met this milestone, as this represents a critical step towards industrial innovation, and also unlocks an additional $100 million investment from VW. On the technical front, we are pleased to report that the team has made four-layer cells in the larger 70x85mm form factor, that we laid out as a target on our last earnings call. As the data in our Shareholder Letter shows, early results in the testing of these cells look promising, approaching 500 cycles to date with excellent capacity retention and with the cells continuing this cycle. These results from four-layer commercially relevant-area cells indicate we are on track to meet our eight to 10-layer cell milestone by year-end, followed by prototype samples into commercially relevant form factor, containing dozens of layers by 2022. We also report today, data from testing of our cells with zero externally applied pressure. In other words, one atmosphere of total pressure in coin-sized cells. This is noteworthy because other solid state lithium-metal efforts that we are aware of have generally required pressure through this cycle. However, delivering very high pressures adds cost and complexity to the system. As the data in our Shareholder Letter shows, the cells achieved over 1,000 cycles with good capacity retention, even with zero applied pressure. We did this work in coin-sized cells, which is a platform we use for early research developments. And while there is more work to be done to replicate the results in larger-area cells, achieving these results in this form factor is an important first step toward introducing this capability into larger cells. We believe that being able to manufacture cells that require zero applied pressure could enable us to address markets beyond automotive, such as consumer electronics, where applying pressure is impractical due to size constraints, and while not necessary for automotive applications, could simplify automotive module and pack design in the future. On the manufacturing front, last month we signed a new long-term lease on an approximately 197,000 square foot facility near our headquarters in San Jose, that will house our QS-0 pre-pilot line, as well as other R&D activities. We plan to move into this new facility in the fourth quarter of this year. Finally, we raised $478 million in gross proceeds in a follow-on offering in the quarter, of which approximately half will be used to fund the expansion of QS-0 to over 200,000 cells per year. Additional capital from the equity offering will be applied to fund the buildout of QS-1, our joint venture with VW, which will target commercial production in the 2024 to 2025 timeframe. We've accomplished two of the four previously announced milestones for 2021: the VW milestone and securing a facility for QS-0, and have made strong progress towards the third, four-layer multilayer cells in commercially relevant form factors. Our remaining stated milestones for the year are to complete the development and testing of the four-layer commercially relevant area cells, and then to build eight to 10-layer full-sized battery cells. A few words of historical context, Fritz, Tim, and I started the company over 10 years ago with a vision of enabling the next generation of electric vehicles. We believe that if we could develop a solid state battery, we could facilitate the transformation of the automotive industry, from internal combustion engines to electrified power trains, enabling a substantial reduction in greenhouse gases. We didn't know when we started whether we'd be successful. We were fortunate enough to have a combination of investors and team members, who were committed enough to this goal to weather the ups and downs of the development process. It ended up taking us 10 years, with deep experimentation in every material we could think of, to develop our solid-state separator, and the associated scale with manufacturing processes. This single-minded focus has served us well in the past, and going forward, we intend to continue being singularly focused on executing our development plans. We believe if we can do this, we will achieve our goal of building the next generation of value to our customers, positively impacting emissions, and creating significant value for our investors. Based on the groundbreaking results we've shown so far, I remain optimistic about our ability to execute on this vision and achieve our goals. Given this context, with the exception of satisfying tax obligations, I'm committing to not sell any of my QuantumScape holdings at least until we have delivered a prototype in a commercially relevant form factor to Volkswagen. In closing, I'd like to thank all of our employees for the incredible, groundbreaking work they've been doing, and whose commitment to our mission and vision have gotten us to where we are today. With that, I'll hand it over to our CFO, Kevin Hettrich, to say a few words about our financial performance, and open it up to Q&A.

Thank you, Jagdeep. In the first quarter, our operating expenses were $45 million; excluding stock-based compensation, operating expenses were $33 million. This level of spend was in line with our expectations entering the quarter. For the full year, we expect cash operating expenses to be in the range of $130 million to $160 million. In terms of CapEx, on a full-year basis, we expect to spend between $130 million and $160 million, with about half of that spend dedicated to our $200,000 plus QS-0 cell capacity, as well as tooling and machinery associated with an additional engineering line at our new building. The aforementioned capacity increase of QS-0 enables us to provide more prototype cells to VW, other automotive OEMs, and prospective customers in other industries. We intend that QS-0 will establish a mass manufacturing system blueprint. Learnings from the larger QS-0 capacity are expected to help further de-risk our QS-1 scale up. With respect to cash, we spent $35 million on operations and CapEx in the first quarter. We anticipate the aforementioned free cash flow burn to be in the range of $260 million to $320 million for 2021, which is approximately $30 million more than we communicated on our February earnings call, predominantly due to CapEx associated with the expansion of QS-0 capacity. We ended the first quarter with approximately $1.5 billion in liquidity. We plan to end 2021 with well over $1.3 billion, a net increase of over $300 million compared to our liquidity position entering the year. We believe this capital fully funds QuantumScape through initial QS-1 production, and additionally contributes to the subsequent QS-1 expansion. Of course, the pace at which we are able to spend will depend on several factors, including our ability to ramp headcount and the maturity of our production processes, including the level of its automation. Our GAAP net loss for the first quarter was $75 million. Of this amount, $31 million represents the non-cash fair value adjustment of the assumed common stock warrants, in accordance with U.S. GAAP, previously referenced. With respect to the share count, I'll be providing numbers rounded to the nearest 0.1 million shares. We ended the first quarter with approximately 389.8 million shares of common stock outstanding, including approximately 12.0 million shares from our March follow-on equity offering and approximately 9.5 million shares issued upon the exercise of assumed common stock warrants during the first quarter. While the technical milestone associated with VW's investment was met in the first quarter of 2021, the investment closed after quarter-end, following the expiration of the applicable regulatory waiting period. Consequently, the 15.2 million shares subsequently issued to VW are not included in the aforementioned 389.8 million shares of common stock outstanding at quarter-end. Similarly, cash subsequently received from VW is not reflected on our Q1 balance sheet. In summary, we're excited with everything we accomplished this quarter and look forward to the challenges ahead. We'd like to thank our investors for their support and belief in our mission. With that, I'll pass it over to John.

Thanks, Kevin. As we've done in the past, we will now review a few of our most asked questions from investors during the quarter before moving to the traditional Q&A session with the cell side of Analysts. Jagdeep, can you explain how you've tested for dendrites? And what gives you confidence that your separator can resist dendrites?

Sure, John. So the best test of dendrite resistance is actually the cycle lifetime. How long can you cycle under uncompromised test conditions, meaning high current densities and a broad range of temperatures? For our single-layer cell, we've shown over 1,000 cycles to over 80% capacity retention at high rates of power corresponding to one hour charge and discharge at a temperature of 30 degrees Celsius, as opposed to elevated temperatures of 60 to 70 or 80 degrees. Again, this is probably the best test to show resistance to dendrite formation. In addition to that test, we've done additional tests to determine the fundamental capability of our solid state material, such as the latter test, where we charge at a given rate for a given amount of charge and keep increasing the rate to find out how much stress the material can take. The data we're reporting from our battery showcases shows that our solid state separator could survive 100 milliamps per square centimeter, many times higher than what the cell could ever experience in a real-world setting. These are some examples of the tests that have given us confidence that our material can resist dendrites in real-world configurations.

Okay. Great. Next, can you talk a little bit about the different types of temperature testing in our presentations? And why investors will see, for example, the latter testing that you mentioned, was done at 45 degrees Celsius versus our normal sort of cycle life testing, which is done at 30 degrees Celsius? And then there are also some tests done as low as negative 10 degrees Celsius, to show the performance versus traditional lithium-ion batteries.

Sure. So our standard test conditions are to test our 70 to 85 mm area cells, which are the commercially relevant form factor at 30 degrees, which is near room temperature, at 1C rate, which means one hour charge and one hour discharge. This actually is a relatively aggressive rate of charge and discharge, corresponds to discharging your entire battery pack with hundreds of miles of range in an hour, and supercharging it to recharge the battery pack in one hour. In addition to the standard set of data, we report additional data to more fully characterize the forms of the cell. So we sometimes support data at C/3, which is three-hour charge and discharge rates, as well as higher and lower temperatures to reflect conditions that the cell might see in the real world. For the latter test, we use 45 degrees, as you mentioned, 45 degrees Celsius, and that's the effect it has on the automotive OEMs that we're working with. The fast charge is most likely to occur when you're just coming off of the highway, and the battery pack is likely already self-heated. The negative 10-degree test that we do is also very important to show how we separate forms in colder temperatures, which is a key requirement for the automotive application. Not many solid-state systems actually can't run well at these cold temperatures, so that data is an important indication of real-world applicability. So the summary is that we try to test the cells in the standard configuration wherever possible, and where we add additional tests to provide a better sense of how the cell performed in the real world, that's incremental data beyond the base set that we provide.

Okay, great. Thanks. Let's talk a little bit about the competition, because I think investors this quarter noticed a difference in the approach between you and some of your competitors, where some of them are scaling up first, and making large numbers of cells on large-scale manufacturing equipment before they've shown cycle data that meets the automotive requirements of 800 cycles to more than 80% capacity. Their argument being that scaling up is actually the most difficult part of the solid-state approach, whereas QuantumScape appears to be taking the opposite approach. So, can you discuss these two different approaches?

Sure, John. Let me back up a step. There are only a few basic materials that exist relative to making solid state materials. The three main ones that are popular to use are polymers, sulfides, and oxides. All three approaches have issues. The most fundamental one being an inability to prevent dendrites. A system that can't stop dendrites effectively will never be usable in your car. Unfortunately, some dendrites turn out to be a really hard problem in many groups who are working in the space, but it's easier to try and solve the scale-up and size of the cell problem and talk about manufacturing scale rather than solve the fundamental issue of dendrite formation. So our approach is always to end up working at elevated temperatures like 60, 70, or 80 degrees Celsius, C/10 or C/5, which makes it impractical for real automotive applications, no matter how big a cell we make or how much capacity we are packing. In our view, these approaches represent pathological tenets. One of the fuel particularly that's been used by several competitors that are talking about scaling up is the sulfide family materials. Unfortunately, besides the dendrite issue we just discussed, the sulfides have an additional serious issue, which is hydrogen sulfide formation. Hydrogen sulfide or H2S is an extremely toxic gas that forms upon contact of sulfides with ordinary air, which contains water in it. The water reacts with the sulfide and forms H2S, and a quick Wikipedia search will tell you that H2S can kill at a few hundred counts per million. So it's a very serious issue that needs to get solved in the sulfide-based approaches. Now QuantumScape, by contrast, chose to first make a system that can be shown to meet the basic requirements of cycle life and high rates of power, that is one hour charge and one hour discharge, without requiring temperatures elevated to 60, 70, or 80 degrees Celsius. Having shown this data in December, we've now turned our attention to scaling up. So one last point I want to make regarding fundamental chemistry versus manufacturing scale. I know some people say building a prototype is unique and manufacturing is hard. But I would say it depends on the type of product you're talking about. In the case of a car, I would agree that making a prototype might be easy since there's typically no material level of inventions required to make a car. But manufacturing can be hard, because it requires coordinating the build materials that might have 10,000 parts in it, and ensuring a smooth running supply chain that can deliver each of those parts on time is not trivial. Even one missed part can cause the line to stop. But if we're talking about batteries, I would say the chemistry is the really, really hard part. And as evidence, I point to how rare it is to see fundamental new chemistries over the last few decades that have entered commercial deployment. And particularly that’s going to be 40 years of work that have gone into solid-state materials, with very little commercial success to show for all that work. By contrast, many companies in the battery space have shown they can build Gigafactories in 18 to 24 months because there are no new laws of physics required to build valuable batteries. For this reason, we chose to focus first on confirming that we had a material, our solid state separator that could cycle under uncompromised test conditions, without dendrites. And I don’t know if we've shown that, we've turned our business to scaling up the layer count and production capacity of engineering manufacturing minds. We believe this is the only path to making a commercially viable new chemistry: make sure their chemistry works and then focus on scaling up the production of the battery, not the other way around.

Okay, great. Thanks for the thorough answer. Our last question goes to Kevin. Kevin, what's the total CapEx of QS-0? And how should investors think about this relative to the guidance that you've traditionally given around long-term CapEx spending having a one-to-one relationship with annualized revenues?

John, thanks for the question. What we have said is that CapEx spend on our new facility accounts for approximately half the $130 million to $160 million CapEx spend we estimate in 2021. We expect a similar magnitude of CapEx spend on the new facility in 2022. QS-0 will be higher in terms of cost per unit capacity than our subsequent QS-1 facility. There are a few reasons for this. The first one, the engineering costs for QS-0 tooling related to QuantumScape's specifications are estimated to be a higher percent of total CapEx cost and also are not expected to be spread over as high a volume of purchases as for our QS-1 facility. And second, the QS-1 will feature larger scale tools that offer greater economies of scale. We believe the long-term CapEx per unit revenue targets remain achievable with the benefit of eliminating anode-related production equipment, as our cells are anode free as manufactured. We plan to install in QS-0 the same type of continuous flow equipment assumed in our long-term forecasts, and the future work will be to hit our targets operating that equipment, for example, uptime, wind speed, etc., to successfully achieve our long-term cost targets.

Alright, great. Thanks, Kevin. We're now ready to begin the Q&A portion of today's call. Operator, please open the lines for questions.

Your first question is from the line of Adam Jonas.

Hey, everybody. So first, a question about cells delivered to Volkswagen and to other auto OEM customers. I'm reading into your comments that they would have external pressure, I'm just confirming that there may be benefits over time to having zero external pressure. But I just want to confirm that what is required and what is expected from Volkswagen, within the Volkswagen JV is that it would have external pressure? I'm curious how much that is, and whether the amount of pressure matters in terms of form factor or cost?

Hey, Adam, it’s Jagdeep. The cells we supplied to VW were under the standard pressure we’ve been reporting. If you review all the published data, it shows the pressure levels our cells operate at. In automotive applications, using modest amounts of pressure isn’t an issue since the cells fit into modules and those modules into packs, allowing for a system design that can manage these pressure levels without greatly increasing design complexity. Problems arise when pressures reach extremely high levels, like 10 atmospheres or more, which complicates and possibly raises costs for the system design. The zero pressure data we discussed today is new and wasn’t part of the previously announced roadmap. This is notable because it represents an industry first. Typically, solid-state systems need some pressure to keep interfacial resistance manageable. However, the advantage of zero pressure is that it expands usability to applications where space doesn’t allow for pressure application. For instance, in consumer electronics, such as mobile phones, there isn’t room for a pressure delivery system. The main advantage of zero external pressure—keeping in mind that everything is naturally under one atmosphere—is that it opens up consumer product applications for our technology. Additionally, it simplifies module pack design for automotive use, although this isn't mandatory. That’s the important point we’re highlighting in our communication.

Thanks, Jagdeep. Just one follow-up for the team. What opportunities does QuantumScape have in either the U.S. or Europe, in terms of government grants or low-interest loans, for example, Department of Energy, ATVM loans, as you're in a position with your liquidity and your growth to be contributing to the economy and adding high-tech manufacturing jobs and technology jobs in important areas? I'm just curious in the kind of early stages of the proposed infrastructure bill and things like this, how you're gauging that landscape? And is that something that even if it's not necessary, because it seems you have ample liquidity, could be an opportunity that we may see some development as soon as this year?

I can let Kevin address this specific question about government opportunities. Generally speaking, there are a few key sources of capital for a company like ours. First, we have capital from private and public investors already on our balance sheet, with similar capital available to public markets in the future. Second, we have partnerships with key automotive OEMs. Our work is so strategic to the automotive sector that we're seeing significant interest from these OEMs to help fund the industrialization of this technology. A great example is the VW joint venture, in which they are funding half of the joint venture for our initial deployment. Other OEMs will also find this technology significant, making them another source of capital. The third source of capital comes from government incentives at both the federal and regional levels. This is true not only in the U.S. but in many parts of the world, where there is recognition of the fundamental transformation happening in this important industry. Governments understand that having a domestic battery industry is critical for maintaining jobs and technological bases. For example, Germany and the major car manufacturers there are particularly concerned about this, as are several countries in the EU. The current U.S. administration is arriving at a similar conclusion. With that context, I’ll turn it over to Kevin to share some thoughts on specific government-level opportunities.

Sure. Adam, that's a fantastic question. Really, just three things to add to Jagdeep's comment. The first is that what you were noting is certainly the precedent for conventional lithium-ion factories, so that if you look at any of the major recent factory announcements, they do tend to be paired with either some level of country or state or city level support for all the right reasons that Jagdeep laid out. The second point I'd make is that we haven't assumed any of this in any of our historical projections. So if QuantumScape does indeed receive any type of subsidy or government support, that would be upside to any of our plans or projections. And then the final point on their strategic nature, in addition to all the direct jobs being created at the factory, there are also all of the strategic jobs created that are indirect as well, both in the tool supply as well as in the rest of the supply chain as well.

Thanks very much.

Thanks, Adam.

Your next question is from the line of Gabe Daoud with Cowen.

Hey, afternoon, guys, thanks for all the prepared remarks and the Q&A. I guess I was curious if we could just go back to the four-layer 70x85 test. I guess the pressure requirement and how is that relative to your expectations? And I guess once you start adding the layers here and getting to eight to ten, how do you think that requirement will look like for the design of eight to ten-layers? I guess, just trying to think about when, if you think that 6.8 could trend down throughout the rest of this year?

Our experience has shown that we currently apply a single-digit number of atmospheres of pressure. When pressure is applied to a stack of cells, it gets distributed across the stack, meaning that the pressure does not increase with the number of layers. The pressure can only go through the stack without being confined. For instance, a 10-layer cell does not require 10 times the pressure. Additionally, we released data on zero pressure results to highlight the team's significant progress in cycling lithium metal anodes without any applied pressure, an area that has seen little advancement in the past. This development is interesting because it simplifies module and pack-level design. While we believe that applying single-digit atmospheres can be engineered into automotive applications, we consider it simpler not to require pressure. With the proof of concept established using zero pressure cells, we plan to move in that direction and expand into other applications like consumer electronics that don't allow for pressure.

Thanks, Jagdeep. That's helpful. As a follow-up, Volkswagen mentioned on their Power Day that they are moving towards a uniform cell design with a prismatic approach. Can you discuss your expectations regarding cell design, specifically for the primary 80% of their needs? Will you transition from passive prismatic to accommodate Volkswagen, or could the pouch design meet the additional 20% demand from them over time?

Yeah. So, I think the key point there is that, when we say commercially relevant form factor, we mean a design that can in fact be engineered into a module and back at the carnival, and the key there really is to have enough layers and enough energy density in a given form factor. So if the form factor is too small, then what happens is the packaging and inactive materials start to dominate the cell and the energy density, i.e. what watt hours per unit drops. So as we've mentioned on previous calls, we believe the size, a deck of cards sized form factor that we've been talking about with dozens of layers in it does in fact allow us to hit the 1,000 one hour per liter target that we have. And so with that, it hasn't been commercially relevant to OEMs actually, Volkswagen. You're right that there is a longer-term desire on the part of not only VW, but many other OEMs to move to a form factor that's somewhat wider than the debit card size form factor we've shown. And that's something that we will address in the future. But for now, our current form factor target for commercial development designs remains, roughly speaking that deck of cards style form factor because in our models that can in fact get us to the 1,000 hour per liter energy density target. So there isn't a need to try to build a larger module form factors, which then require additional development to commercialize.

Got it. Thanks, Jagdeep. Thanks, everyone.

Thanks, Gabe. Appreciate it.

Your next question is from the line of Rod Lache with Wolfe Research.

Hi, everybody. First question, just clarification, the zero-pressure cell that you described, that does not have any liquid in it, Jagdeep?

Hey, Rod, great question. I'm really glad you asked this. When we refer to solid-state, we're talking about two aspects. First, there's a solid-state separator, which is a dense material, unlike today’s cells that use a porous separator made from typically organic materials like polypropylene. We utilize a polyolefin material. These materials don’t conduct on their own, meaning lithium ions can’t pass through those plastics. Instead, they have holes filled with liquid electrolyte, which is present near the cathode, the separator, and the carbon particles in the anode. It's found throughout the cell. In the solid-state design we are discussing, we remove the replaceable components, resulting in a denser separator with no holes. Here, lithium ions move through the atomic lattice of the separator itself. The second aspect is that between the solid separator and pure metallic lithium, there is no liquid, creating a direct solid-to-solid interface. Our cathode contains organic material mixed with liquid, but that part is constrained; it relies on capital investment. Thanks to the ceramic separator, the liquid doesn’t reach the lithium metal anode. If it did, the cycle life would decline more rapidly than what we’re currently experiencing. Our cells have demonstrated 1,000 cycles of life with over 80% capacity retention—often around 90%—which exceeds expectations. We believe achieving this with a liquid cell isn’t feasible because liquids typically react with metallic lithium. This reaction leads to a loss of both lithium and liquid, along with the formation of side products that increase cell impedance. Consequently, cell cycle life diminishes within 300-400 cycles, falling below 80% capacity. Thus, the key is that a solid separator lacks holes to prevent liquid penetration, and the lithium metal anode interfaces directly with that separator without requiring any liquid in between.

Yeah. Okay. That's helpful. Thanks for clarifying that. You've made a comment in the letter, Jagdeep, about the development tasks ahead. A couple of them obviously related to manufacturing like throughput, yield, and uniformity. Can you talk about the path forward on that? What kinds of metrics are you targeting for these? And how challenging are they?

So, those are key requirements for any high-volume process. We experienced a similar situation at my previous company, which produced an optical photonic integrated semiconductor chip. Yield is something that continues to improve as we gain more insight into the process to achieve uniformity and reduce defects and contaminants in our lab and manufacturing floor. As a result, yields start to increase. Throughput depends on the tools and processes in place. For instance, batch processes that involve significant human intervention tend not to be scalable, which is why our design for the solid-state system relies on continuous flow processes. The manufacturing process consists of two steps. The first step is creating what we call a green tape to cast the material, which is done using continuous flow coders similar to those used for today's cathode electrodes in value factories. The second step is heat treatment, which is also a continuous flow process, where the material undergoes a continuous flow in a heat treatment tool that applies the correct heat profile. These are the practices we're implementing and will continue to follow. Ultimately, the measure of our success is whether we can deliver the cells we intend to provide to our customers. For example, if we can establish a QS-0 factory for the 200,000 cells a year that we are targeting, it would indicate that we are meeting our goals for all these metrics.

Yeah, that makes sense. And just lastly, I was hoping you might be able to pass along what you're hearing from other OEMs, aside from Volkswagen, on the developments since you've made them public? Some of them seem to still be very focused on silicon anodes with conventional separators and electrolytes. Are they conveying that that's kind of a temporary solution? Or are you hearing more interest from others at this point?

What we're hearing is that silicon technology is already here and has been for some time. To begin with, there seems to be a consensus among those we've spoken with that metal is the ultimate goal. OEMs have indicated that you can't achieve a higher energy density or specific energy anode than what pure lithium metal offers, as it doesn’t contain any additional material that could weigh it down. In this scenario, we are cycling pure lithium back and forth within a zero lithium cell, without any extra lithium to aid in the formation of the anode. The concept of silicon can be somewhat challenging to grasp because current anodes generally consist of a combination of silicon integrated into a carbon anode, rather than being composed entirely of pure silicon. This is crucial because pure silicon tends to absorb a large quantity of lithium and expands significantly, then contracts again when lithium is discharged in solid form. As lithium cycles through, silicon expands and contracts like a sponge, resulting in a breakdown of the material over time, which leads to reduced capacity. To mitigate this degradation, the typical approach is to incorporate a limited amount of silicon into the carbon anode. Thus, there’s a trade-off between the amount of silicon used, energy density, and the lifespan of the cycles. When the topic of silicon arises, it’s important to clarify how much is being referenced since to our knowledge, a 100% silicon anode has not demonstrated satisfactory cycling longevity. Unfortunately, this complexity isn't always clearly communicated; some companies present data showing the energy density of a silicon anode with a high silicon content alongside cycle life data for a lower silicon content, which creates confusion about whether both refer to the same cell. Therefore, it's vital to ask informed questions for clarity. Overall, the OEMs we’re interacting with view silicon as a stepping stone towards achieving a pure metallic lithium anode, if feasible. While we haven't yet supplied them with pure lithium cells for their vehicles, if we do, we anticipate a significant interest from various OEMs in moving away from silicon anodes.

Great. Thanks, Jagdeep.

Thanks, Rod.

Your next question is from the line of Mark Delaney with Goldman Sachs.

Yes. Good afternoon, and thanks very much for taking the questions. Maybe first to follow-up on that last question. The Shareholder Letter talks about continued strong inbound interest from multiple prospective customers. Could you elaborate any more on that in terms of how the inbound interest the company's seeing currently, maybe compares to how it was as of the last time we spoke about 90 days ago? And what it may take in order to win an additional customer beyond VW?

Yeah. Hey, Mark, thanks for the question. We obviously can't comment on any deals that aren't announced. But we have said that there's been a lot of interest from a lot of players. Since we announced our Q4 earnings call with the multiyear results, we've seen continued increase in interest both sides of the level of interest and the amount of interest from a number of players out there in our technology solution. And to the candidate right now, we really expect to be supply constrained in terms of both near-term delivery of test cells to these OEMs, as well as the prototype samples that will come off of our two QS-0 product lines. We did, as you know, decide to expand with QS-0 pipeline, more than double its capacity that was keeping a reasonably offering last quarter. But even with that added capacity, we expect there will be an allocation, which is a good thing in some sense, but it's still a problem in that we can't serve everybody's needs. The reality is, Mark, that we're as a company that's still emerging. We won't have the management bandwidth to have too many customers, in terms of our ability to support them. So we're going to have to pick a small number of key partners anyway. But in terms of the amount of interest we're seeing, I would say it's very broad, as you would expect. I mean, if you have a technology that has the kind of features we're talking about, higher energy density, and the ability to charge more quickly, and the safety benefits in a solid-state separator, and the cycle life that we're talking about, why wouldn't it be attractive? So our key challenge here is delivering enough cells to all these players to kind of give them what they need and wind up really prioritizing the ones that we think will be the best fit for what we're doing.

That's helpful. Thanks. My second question is trying to better understand the comment in the Shareholder Letter. You talked about targeting commercial production in 2024 to 2025 timeframe. And I'm hoping to understand how that compares to the Analyst Day presentation showing about a quarter of a gigawatt hour being shipped in 2024. And I think that was pretty early production. So maybe there's no change. But just trying to better understand the current phrasing compared to what had been previously articulated in the financial plan? Thank you.

Yeah, I think you pretty much articulated it well. If you look at that Analyst presentation, the model that we had there showed relatively small revenue in '24 wrapping up in '25. And that's what we're referring to when we say the '24 to '25 timeframe.

Okay. Thank you.

Your next question is from the line of Ben Kallo with Baird.

Thank you, guys. Jagdeep, you do a very good job of explaining stuff. It's very complicated to lay people like me. You said something about the cells and ramping up a battery factory 18 to 24 months. And I was wondering just how the differences in the form factor, as you go from a cell to a battery and put that into a pack, and the kind of equipment that takes. And I expected or I would assume that you did due diligence with VW about that step, and taking all those different form factor cells that make you into a pack. But, if you can just maybe explain a little bit more.

No, absolutely, that's a great question, Ben. Before I answer, let me provide some context. The tools used in the factory will be quite similar to those in a conventional lithium-ion factory. For instance, the cathode line will essentially be the same, utilizing cathode coders and similar suppliers. The active material in the cathode will also be comparable to what is used in current or upgraded versions of lithium-ion batteries. The anode line is non-existent, as there is no silicon or carbon, and no additional layer of lithium forms on the anode. We keep the cathode line but remove the anode line. The only difference is that while conventional batteries purchase separators from suppliers, we manufacture our own separator. We produce this separator using scalable tools and continuous low dimensionality methods, following a two-step process: first, a casting process akin to that used for cathode coatings, followed by a heat treatment step employing a continuous flow treatment where materials move through a conveyor belt, facilitating a continuous workflow managed by our employees. Both of these processes are scalable. Regarding the second part of your question about how the battery or battery pack process differs by form factor, we initially considered manufacturing both cells and packs. However, we soon recognized that cell production is complex, leading us to focus solely on cell manufacturing. Moreover, we discovered that the OEMs we engaged wanted to manage the pack themselves, as it is a crucial aspect of the vehicle design, tightly integrated mechanically, thermally, electrically, and via software. The OEM combines the cell and pack as part of the vehicle. Making cells offers a straightforward interface, being a simple two-terminal device with minimal additional complexity. Thus, when we produce cells, it’s easy for the OEM to integrate them. The OEM is responsible for pack production, and our main duty is during the design phase, ensuring we communicate the cell's external behavior, including its electrical and thermal characteristics and its interface with the vehicle, as well as its battery management system. Ultimately, our role is to provide the cell components rather than selling directly to them; they assemble engineered packs that accommodate our cells to create a complete pack.

I just want to clarify that someone is already working with VW, and your next OEM partner is also developing a pack to match the cells. The next cell you are producing appears to be larger.

Yeah, so actually, the way it works is that it's a collaboration. So the OEM tells us what their module and pack looks like, and what kind of cells would fit that module pack. And we designed cells that are designed to fit into that module and pack with minimal change. So in fact, this is why when people ask me how many layers on your cell, we say the actual data count depends on the particular OEM, because every OEM has a slightly different or in some cases quite different module and pack architecture. But we actually modify our cell design. So when I talk about the commercially relevant form factor being roughly the size of a deck of cards, the reason why I say roughly is because the precise dimensions may vary by OEM in order to more cleanly fit into their module and pack.

Got it. That's very helpful. Congratulations on raising money. Could you discuss the VW and the milestones mentioned in the report? Also, is there another milestone that triggers capital injection?

The specific milestone we set was established about a year ago when we entered our Series F. We have had a partnership with them since before we became public, and they participated in the private round at that time, committing to invest an additional $2 million. As COVID began, automotive OEMs experienced a notable decline in their revenues and cash flows, prompting them to suggest a two-part investment plan. The first part would be completed in December without any closing conditions, simply allowing time to address the effects of COVID. The second part was to be linked to what they considered a crucial milestone for commercialization. This milestone, as detailed in our Shareholder Letter, related to a specific form factor and test conditions. The form factor was vital since it defined near production thicknesses and areas for the separator, ensuring we could produce the separators at the right thickness to be commercially viable while meeting our energy density targets. Regarding the test conditions, they required specific parameters related to temperature, power output, and cycle counts. We were pleased to see the cells meet all these requirements, which unlocked the $10 million investment that had been committed a year ago and is now fully funded. Any future funds from VW will be associated with establishing the joint venture we've previously discussed, where they have pledged an undisclosed amount to finance half of the first production plants in this venture.

Got it. Thank you very much for the transparency. Thank you.

Thanks, Ben. Appreciate the questions.

Your next question is from the line of Joseph Spak with RBC Capital Markets.

Thank you. Good afternoon. Jagdeep, clearly good news on the larger format four-layer cell test. I was just curious, though, like, was this one test? Or like, how many four-layer cell tests were done? And I guess related, like, I know these are still pre-production cells, but how difficult or what was the yield that sort of gets the larger cells for the tests there?

Yeah, thanks for the question, Joe. So yeah, this is definitely good news, because as you point out on the last earnings call, we reported four-layer cells. But because we didn't have the capacity, we made them in 30x30 mm form factors, which is somewhat smaller than this 70x85 mm commercially relevant form factor kind of the playing card size. So the question was, okay, great, we can make them work in the 30x30 form factor. What happens when we scale up to the full playing card size form factor? Will they still work? Or will new problems creep in? And so, what we reported on this, the data you see in the slide and in the Shareholder Letter, is in fact that when we made them in multi-layer cells, this is more than one cell; we always make cells in batches and put them on tests in batches. And obviously, the yield is not 100%. And when you make the cells, there are some cells that don't make it out of the manufacturing process. But of the ones that we deem to be good cells, we see very good performance in terms of cycle life and capacity retention. So on the slide here, you're seeing that it's hard to read because you don't have a background good on the slide, but that you see that the cells are approaching 500 cycles now, with around 90% capacity retention, which means if they continue on in this fashion, you expect over 1,000 cycles, almost 80% in the full 70x85 mm size four-layer cells. So, that's definitely new news and it's good news because it means that when you show last time is when you stack four-layers up together, you don't adversely impact cycle life. And now what we're showing is when you increase the area of those four-layers, you don't impact the cycle life or capacity retention. And those are the key questions that we had, was, are there strange interaction effects, is that the larger area, does that create a bigger opportunity for problems to creep in and so on? And what this data shows is that it is in fact possible to make these four-layer cells and have them perform really well relative to cycle life and capacity retention. Again, all of these test are being done at aggressive rates of power; one hour charge and one hour discharge battery cycle life testing is not done at those rates. It could be done at C/3, three-hour charge and discharge. This is more like, again, what I will talk means you're discharging the full multi 100 mile range car in an hour. And then you also recharge it at a supercharger, then now, as opposed to in your garage overnight. And then these tests were done actually at 25 degrees Celsius, which is basically room temperature, which again, is something that isn't typically seen in solid-state systems. So, we're actually very pleased with the performance that we're seeing here. But again, we're very careful always to emphasize that whenever we hit a milestone, that it's a milestone, there's more work to be done. We've got to get to the eight to 10-layer, so that was the question that a lot asked me, you have to continue increasing people and uniformity in Europe, and so on. So there's a lot of lifting to be done. But nonetheless, we're very pleased that we have four-layer, four-or five-cells working this early in the year, because that gives us confidence that we can really reach out to hitting the eight to 10-layers by year-end. And if we hit that goal, that will give us some of your increased confidence that we can make a multi-layer, full commercially relevant form factor prototype to deliver to our OEMs to test in 2022. And at that point, the risk drops more, and then we want to talk you about this, I will say that the keys and milestones. In 2023, we will have a higher volume of cells and the 200,000 cells a year, yielding off of our QS-0 pre-pilot line, that will be yet another important risk reduction step, because that's the player, those cells are going to heal cars on test tracks. So, these three or four milestones: the four-layer full size cell, the eight to 10-layer full size cell by year-end, the multi dozen layer full size cell perhaps in 2022. And then the hundreds of thousands full sized dozens of layers worth of cells in '23 that will go into real cars. Every one of those handful of milestones represents sort of a step function drop in risk, that we feel is really making the story that much more exciting. So we're careful to communicate both the results here, and also the upcoming milestones. But every time we hit one of these milestones as we have today, I think we feel increasing confident that we remain on track towards our long-term goals. And that's really all we can do is focus on execution. We believe that if we can execute, the value proposition is so compelling, and the customer interest is so strong, that we're going to end up really making a significant impact on the industry.

And there are no further questions at this time. Do you have any closing remarks?

I just want to thank everybody for making time to join us today. I think that as you've heard on the call and in our Shareholder Letter, we're pleased with the results that we've hit so far in terms of the four-layer cell that I just spoke about, the yield pressure cell, the customer interest that we continue to see, the momentum that we have at our manufacturing line. We've secured the QS-0 facility that will start to be turned up later on this year. And again, we're going to keep focusing on execution. And we believe that if we keep executing, that we will achieve our goals of making an impact in this industry, or helping to make a dent on emissions, and of course, creating a lot of value for our investors. With that, I want to thank you all for joining, and we'll talk to you next quarter.

That does conclude today's conference. Thank you for participating. You may now disconnect.