Good day and welcome to QuantumScape's Third Quarter 2023 Earnings Conference Call. You may now begin your conference. Thank you, operator. Good afternoon and thank you to everyone for joining QuantumScape's third quarter 2023 earnings call. To supplement today's discussion, please go to our IR website at ir.quantumscape.com to view our shareholder letter. Before we begin, I want to call your attention to the safe harbor provision for forward-looking statements that is posted on our website as part of our quarterly update. Forward-looking statements generally relate to future events, future technology progress, or future financial or operating performance. Our expectations and beliefs regarding these matters may not materialize. Actual results and financial periods are subject to risks and uncertainties that could cause actual results to differ materially from those projected. There are risk factors that may cause actual results to differ materially from the content of our forward-looking statements for the reasons that we cite in our shareholder letter, Form 10-K and other SEC filings, including uncertainties posed by the difficulty in predicting future outcomes. Joining us today will be QuantumScape's Co-founder, CEO and Chairman, Jagdeep Singh; our CFO, Kevin Hettrich; and a new addition to our team, Dr. Siva Sivaram, President. With that, I'd like to turn the call over to Jagdeep.

Thanks, John. I'd like to begin today's call by introducing our newly hired President Dr. Siva Sivaram. Siva holds a PhD in material science and brings extensive experience in high-volume manufacturing of advanced technology products, most recently serving as President at Western Digital, a global leader in solid-state and magnetic data storage. Before that, he held leadership positions at pioneering technology companies, including SanDisk, Matrix Semiconductor, and Intel. We're thrilled to have him on board. I'll start by covering our customer prototype testing. As we reported last year, we shipped our first A0 prototype cells to prospective customers in Q4 2022, with the goal of providing a proof-of-concept demonstration of a 24-layer anode-free solid-state lithium-metal battery cell. We can now share that our top performing A0 prototype cell in our automotive OEMs battery testing labs achieved over 1,000 full cycle equivalents with over 95% discharge energy retention using customer-specified test conditions of C/3 charge and C/2 discharge with our standard temperature and pressure conditions and 100% depth of discharge. I'd like to point out that this is the best performing cell, and we have work to do on aspects such as reliability. Nonetheless, this is an exceptional result. We're not aware of any automotive-format lithium-metal battery that has shown such high discharge energy retention over a comparable cycle count at room temperature and modest pressure, regardless of C-rate. We believe that no competing electrolyte, solid or liquid has demonstrated sufficient stability with lithium-metal to achieve this, and that this result sets a new high-water mark for lithium-metal battery performance. This result is especially meaningful because the A0 prototype has the same number of layers as our production-intent cell and uses our proprietary cell format. Together with the higher-loading cathode results reported in our Q1 2023 shareholder letter, we have now separately demonstrated three key aspects of our production-intent cell design: 24 layers, higher cathode loading, and our new cell format. When these aspects are combined, along with improvements to packaging efficiency and manufacturing process controls and automation for improved reliability, it forms the core of our first commercial product, QSE-5. The cover photo of this quarter's shareholder letter shows a mockup of our QSE-5 cell format. It's important to keep in mind that since QSE-5 will have higher-loading cathodes and more efficient packaging than our A0 prototype cell, it will sustain higher current densities and be built with tighter margins, resulting in more stress on the cell. We must also continue to work on producing these cells in large volumes with high quality and reliability. These factors present significant challenges. Nevertheless, we believe this remarkable result makes clear that our technology can achieve disruptive performance at commercial-intent layer counts, further increasing our confidence in the transformative potential of our technology and product roadmap. Next, a word about our customer engagements. Right now, our primary focus is on QSE-5 development, with the goal of enabling superior performance on a range of potential automotive applications across motorsport, passenger and commercial vehicles, including motorcycles, cars, trucks, and SUVs. As we reported last quarter, we're collaborating closely with a prospective launch customer in the automotive sector for QSE-5. While the scale of this initial application is by design small, it represents an important vehicle proof-of-concept that we believe has high visibility and the potential to lead to other programs in the future. We're pleased with the progress the joint teams have made so far on module and pack integration and system design, the significant work remains. For example, we continue to refine and finalize the design parameters of QSE-5, which will determine the specific thermal and mechanical behavior of the cell. Beyond automotive, we remain engaged with prospective customers in the consumer electronics sector. And in Q3, we entered into a technology evaluation agreement with a leading global consumer electronics player. We believe the ability of our solid-state platform to maintain good cycling performance with zero externally applied pressure meets a key design requirement for these applications. The single-layer sister cells that we first reported on in our Q3 2022 shareholder letter have now achieved between 1,500 and 2,000 cycles to approximately 80% discharge energy retention with zero externally applied pressure. Next, an update on our product development. Our planned first commercial product is QSE-5, which uses the proprietary format first demonstrated in A0 prototypes last year. This innovative format is a hybrid of conventional pouch and prismatic cell designs to address the uniaxial expansion of lithium metal as it plates and strips during charging and discharging. We call this novel format FlexFrame. A key technical goal for the year is to improve cell packaging efficiency relative to the A0 prototype cells we shipped to prospective customers in 2022. This involves reducing the space taken up by the inactive material and FlexFrame package, as well as increasing the amount of active material in the cell, which we expect will enable the final commercial design to reach our energy density targets. When comparing the A0 prototype to our current B0 design, the B0's are designed to pack the same number of layers with more energy per layer into a slimmer cell package. We plan to provide a detailed look at the innovative FlexFrame architecture in an upcoming webinar. Now, let me hand it over to Siva for an update on our manufacturing scale-up.

Thanks, Jagdeep. I'll begin with an update on our Raptor process. As a reminder, Raptor is designed to deliver up to three times as much throughput using similar equipment to our last-generation process, while applying less energy per separator. In Q3, we began process qualification of the Raptor equipment on schedule. Process qualification involves producing films, gathering data to characterize their quality and consistency, and using that feedback to refine our process specs. We are pleased with the early returns from the qualification testing. And while there is work remaining to dial in this process, we continue to target deployment of Raptor by the end of the year. We also continue to make progress on our next-generation Cobra process, which is planned to support higher-volume B-sample production from our consolidated QS-0 pre-pilot line. Along with separator heat treatment equipment, in Q3 we took delivery, installed, and commissioned key pieces of equipment related to process automation, such as unit-cell assembly equipment. More automation not only increases our cell production capacity, but also reduces manual handling, which is a common source of run-to-run variation and tends to adversely impact reliability. We plan to continue process development and automation deployment to enable higher quality, consistency, and throughput as we build out our manufacturing capability. Overall, we are pleased with our manufacturing scale-up progress, but more work remains, including continuing to drive our defect reduction and quality improvement initiatives, integrating advanced metrology and data collection, and developing additional process automation.

Thanks, Siva. Third quarter 2023 capital expenditures were $18 million. GAAP operating expenses were $121 million. Cash operating expenses, defined as operating expenses less stock-based compensation and depreciation were $64 million. For the full year 2023, we maintain our guidance on cash operating expenses of $225 million to $275 million, and revise our CapEx guidance to $75 million to $100 million. Approximately one-third of the reduction in expected CapEx spend is due to realized savings. Examples include successful value engineering, negotiated price reductions, and completion of certain projects under budget. The remaining approximately two-thirds is due to shifts in timing, which can be broken down into three broad categories. Certain items we deferred because we had additional schedule buffer, items where we previously forecasted more front-loaded payment timings and what will actually be required, and updates to aspects of our equipment strategy. Despite these changes in the timing of CapEx, we continue to target low-volume B samples in 2024 and higher-volume B samples in 2025. During Q3, our CapEx primarily went toward facility and equipment spend for our consolidated QS-0 pre-pilot line, including for our Raptor process. For the remainder of the year, our CapEx will continue to be predominantly allocated toward QS-0. During the quarter, we raised $300 million in gross proceeds from our public follow-on offering. We ended Q3 with over $1.1 billion in liquidity and continue to look for opportunities to optimize our spending and be prudent with our strong balance sheet. We now forecast our cash runway will extend into 2026. Any additional funds raised from capital markets activity, including under our ATM prospectus supplement, would further extend this cash runway. Longer-term, our capital requirements will be a function of our industrialization business model, which we believe could reflect a mix of wholly owned production, joint venture, and licensing relationships.

Thanks, Kevin. Fundamentally, our focus for 2023 is simple, turn the corner from prototype to product. Our key milestones are all aimed at advancing product development to build a sufficient level of technical and manufacturing maturity to enable initial production of the QSE-5 cell. With just a few months remaining in the year, we're maintaining aggressive near-term schedules and remain focused on bringing a potentially disruptive first product to market in the near future. But strategically, our mission is bigger than a series of near-term objectives. We've been pursuing a next-generation electric vehicle battery for over a decade. And with a mission as challenging and as important as this, long-term thinking is indispensable. Moreover, the market opportunity for our technology platform is massive, potentially in the hundreds of billions of dollars annually for decades to come. With that in mind, this year we've also taken steps to strengthen our long-term strategic position. For example, this quarter we seized the opportunity to fortify our balance sheet, extending our forecasted cash runway into 2026 and securing funding for pivotal development and deployment milestones, including higher-volume B samples based on our Cobra separator process, which, if achieved, would have a transformative effect on our business. We've also built on our strong customer relationships and deepened our engagement with a prospective launch customer for our first product. And we continue to add manufacturing experience and technical excellence to our teams at every level. At the close of Q3, we feel prepared to face the inevitable and innumerable short-term challenges on the way to our goal, because we've laid a strong foundation for long-term success. We look forward to reporting on the challenges and the successes in the quarters to come.

Thanks, Jagdeep. We'll begin today's Q&A portion with a few questions we've received from investors, or that I believe investors would be interested in. Jagdeep, we'll start with you. And I wanted to ask about our newly hired President, Dr. Siva Sivaram. Could you tell me a little bit about your expectations for him in his new role, and why you felt somebody with his background and experience was a good fit for us at this stage of our development?

Sure. So we're thrilled to have Siva join the team. We've stated that our main goal for the year was to turn the corner from prototype to product. In support of that, we've been working on the scale-up of the manufacturing processes, equipment, and automation associated with higher-volume, higher-quality production. A key part of this is, of course, having the expertise needed to do this. We wanted to bolster our senior management team with someone who brought not only super high-volume production experience, but experience in sophisticated manufacturing processes such as those found in the semiconductor or magnetic storage industries. But we don't think we could have found a better fit than with Siva, who was President at Western Digital, then one of the world's largest data storage companies with $18 billion in revenue in 2022 and something like a 40% share of the hard drive market. The company shipped literally millions of units per year, and these units involved highly advanced manufacturing processes and supply chains. For example, as you might know, modern disc drives had magnetic heads that float on the order of 5-nanometers above the surface of a platter, spinning at several thousand RPM, and do this repeatedly and with very high reliability. He was also a pioneer in multilayer semiconductor technology, which now routinely achieves over 200 layers. We think all of his experience will be invaluable as we scale up our equipment and increase our quality and reliability.

Okay, and now a question for Siva. Siva, now that you've been with QuantumScape for a couple of months, I wanted to get your initial impressions as well as your assessment. Why do you think QuantumScape's technology is scalable and what needs to be done to make that happen?

Thanks, John. It's been a very active and involved last couple of months. Even before I came to the company, I spent a lot of time developing an understanding of the electrochemistry, the material science, and the thermodynamics of QuantumScape's technology. But now that I'm here, what has interested me, first and foremost, is the quality and commitment of the people, the depth of expertise and experience that's here within QuantumScape. I see the rigor that we have in development and the collection and management of data that gives me confidence in the company's core competencies. It's very interesting to note the similarities to my prior semiconductor and magnetic storage experience, whether it is on hardware assembly, semiconductor backend, or battery manufacturer as we scale to higher volumes, the key to scaling is defect reduction, process control, and a high level of automation. I've also seen that the ecosystem at QuantumScape is very well developed to provide the incoming material, equipment, setting up a very robust supply chain. And the depth of interaction with top-tier customers, their sturdy feedback, sets the tone for continuous improvement as we ramp. Overall, the company and the technology are well poised for scaling.

Great. Thanks so much, Siva. Kevin, turning to you, a question submitted by one of our investors. Can you provide some additional context on the $300 million follow-on offering closed in August? How does this fit into your long-term approach to capital management?

Thank you, John, for the question on behalf of the investor. In the first half of this year, we achieved several significant product and manufacturing milestones on our path to commercialization. We believe this was the right time for a follow-on equity offering due to our progress in product manufacturing and customer engagement. In our Q2 shareholder letter, we highlighted improved cathode performance and shipped unit cells featuring these cathodes to multiple partners. On the manufacturing side, in Q2, we successfully completed site acceptance for our Raptor equipment, which aligns with our goal of deploying the fast separator process by year-end. Additionally, we announced engagement with a potential launch customer in the automotive sector to bring QSE-5 to market. We felt confident in our progress across various areas and wanted to ensure our capital runway would extend into 2026, allowing for the development of our QS-0 Cobra line and the production of higher-volume B samples targeted for the end of 2025.

Okay, great. Thanks, Kevin, so much for the insight. Jagdeep, with approximately two months left in the year, can you summarize for investors how we're tracking against our 2023 goals that we laid out for investors in February? Specifically, what work remains to be done?

Sure, John. So at the beginning of the year, we laid out four key goals for the year that we thought were critical to helping turn the corner from prototype to production. The first was to increase the loading of the cathode from approximately 3 milliamp-hours per centimeter squared to approximately 5 milliamp-hours per centimeter squared to store more energy in the cell. We reported on the Q2 call that we achieved this higher-loading cathode and in fact, shipped unit-cell prototypes with these new cathodes to customers. The second key goal was to improve the efficiency of packaging. And on this front, our new FlexFrame package incorporates several improvements from narrower edge margins, thinner adhesive layers, and thinner current connectors. The other two goals were production-related and having to do with our Raptor process and reliability. And I'll turn it over to Siva to talk about those.

Thanks, Jagdeep. The third goal was to install and deploy our new Raptor process. We've installed and qualified the Raptor equipment, we're starting to produce high-quality films and are optimizing the process to meet our performance targets. We're making good progress towards Raptor deployment by the end of the year. And finally, on reliability. We have undertaken and completed over a dozen initiatives to reduce defectivity and are now focused on process enhancements that we believe will take our reliability up to a new level. Of course, reliability is never done. It requires an ongoing effort to weed out and eliminate potential failure modes, especially as we introduce newly improved scaled-up processes.

Okay. Thanks so much, guys. We're now ready to begin the live portion of today's call. Operator, please open up the line for questions.

Thank you. Your first question comes from Douglas Dutton with Evercore ISI. You may now proceed.

Hi, Jagdeep and Kevin. And welcome, Siva. Appreciate the nice update here. Can I just quickly ask for a little more detail on the B-sample timeline, specifically if you can confirm when the timeline for production with Raptor looks to be right now? Previously, I believe you said about 18 months after the A-sample, which would imply the B-sample timing around mid-2024. This release only quotes calendar year 2024. So is there anything else you can tell us on the timing for those first B0 samples, given that it seems the Raptor certification and testing process is coming along well?

Yes, as Siva mentioned, we are pleased with the progress of the Raptor qualification process. The equipment is being installed, and we are currently qualifying the process for deployment later this year. We still aim for 2024 to produce the low-volume B samples. The 18-month guidance we provided was a rough estimate, but we are targeting to have the first low-volume B0 samples in 2024. Following that, we anticipate producing higher-volume B samples using the new Cobra process before the end of 2025. These are our key milestones for the next year and the year after, with the Raptor process introducing low-volume B samples in 2024, and the Cobra process, which is faster, introducing higher-volume B samples in 2025.

Okay, that's helpful. And then just a quick one on Toyota's solid-state news over the last couple of days. The company has claimed a doubling of EV range with their solution. There's no “new tech here”, right? They're simply adding in significantly more kilowatt-hours toward the smaller space required in a solid-state design to achieve that stated range. Is that your understanding? Thanks, team.

Yes. So, first of all, I want to say that we're genuinely pleased to see a company like Toyota endorsing solid-state batteries as the future of EVs. We obviously agree. We've been on solid-state for a long time. Having said that, Toyota has announced that it's using a sulfide-based approach, which does come with some challenges. We've done a lot of work on sulfides ourselves here. We got our patent portfolio, a number of the patents are in the sulfide space. And one of the key challenges with sulfide-based approaches is low cycle life that results from poor electrochemical stability and the propensity to form lithium-metal dendrites. Now if the dendrite problem isn't addressed, then there are sort of two basic options. One is to revert back to a carbon or silicon-based host material as opposed to lithium-metal, but then that results in reduced energy density and power density relative to a lithium-metal anode. And the other option is to run under what we consider to be compromised test conditions, i.e., elevated temperatures or very high pressures, or low rates of charge and discharge, or a short cycle life. So, all of those approaches, we think, make the approach unsuitable for commercial vehicles. We're not aware of data from anyone that demonstrated these fundamental challenges of lithium-metal dendrite formation in sulfide-based systems has been addressed at room temperature and modest pressures. But if data exists, we welcome seeing it. And of course, the data we shared today, if you look at the first chart in our shareholder letter, that shows data from our A0 24-layer prototype cells, which of course we shipped in 2022, that achieves 1,000 cycles with a remarkable 95% capacity retention. Which as we mentioned in the call, we believe is a highwater mark for cycle life in an automotive-format solid-state lithium-metal battery. So, we think the data is pretty clear on the capabilities of this approach.

Your next question comes from the line of Winnie Dong with Deutsche Bank. Your line is open.

Hi, thanks so much for answering the questions. I was wondering if you can elaborate on the challenges being written about in the shareholder letter, more specifically on combining the high cathode-loading with more efficient packaging, and then in the new QSE-5 format. Especially, like what are the hurdles that need to be overcome for this combination to be successful?

It's a great question. As mentioned in our letter, there are several key areas that highlight the differences between the A0 we shipped last year and the QSE-5 planned for next year. Firstly, the layer count is the same; both the QSE-5 and the A0 are 24-layer cells, which we've already demonstrated. The second requirement for the QSE-5 is a higher-loading cathode, specifically around 5 milliamp hours per centimeter squared, compared to the 3 milliamp hours on the A0s we shipped. Earlier this year, we showcased results from 5 milliamp hour cathodes, and we have shipped those cells to customers. The third element is integrating everything into our new, more efficient FlexFrame package, where we've made advancements like reduced margins and thinner adhesive layers. All these factors contribute to the development of QSE-5. We believe we've already validated many of the key features of the QSE-5 cell individually, akin to unit testing in software development. Now, our focus is on integrating these components into a cohesive cell rather than developing entirely new features. That's the current status of QSE-5.

Thank you. That's really helpful. And then on the work with the prospective launch customer for QSE-5, is there any additional color you can provide in terms of initial customer feedback or testing feedback thus far? Example, are the design parameters that this customer is looking at in line with, less or more stringent than the gold standards that you’re targeting in terms of cell performance?

Yes, that's a great question. One of the reasons we chose this initial launch customer was their enthusiasm for the QSE-5 cell as it currently stands. We want to avoid any redesigns or changes that could postpone our time to market. We're pleased that this customer is genuinely excited about what QSE-5 can offer. In our last earnings call, we discussed the QSE-5 capabilities and presented a landscape of energy versus power, showing that QSE-5 holds a distinct position in that context. Additionally, we believe we can meet this customer's volume requirements from our QS-0 facility in San Jose. Finally, the maturity level they are anticipating aligns with what we expect from our higher-volume B samples. Given these three factors—volume needs, maturity expectations, and product functionality—this customer is a great match for us. That's why both parties are looking forward to the collaboration and the potential it holds.

Thank you so much.

Absolutely.

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

Hey, guys. Thanks for taking my questions. Siva, congrats on your new role. Just maybe, Siva, with your new role, we heard about what's similar to your previous roles. What do you think the difficulties are compared to your previous roles? And then I have a follow-up.

Thanks, Ben. My prior role has always been taking advanced technologies into very high volumes. How do we integrate the technology into materials, processes, and equipment and scale it up. And I have done this several times in the past. When I came into QuantumScape, that’s exactly what I am hoping to accomplish very soon. The technology is in a great place, the customer demand is there, the market is very large. It’s up to us to now scale what we have into a product that we can deliver to customers, and I’m looking forward to that challenge.

Just as you deploy capital and you have partners come in, how has it changed as we move forward and you test out stuff? Like, are partners more willing to invest capital so you can save some money, or how do we think about this going forward with your capital deployment?

Yes, Ben, thank you for the question. First on the $300 million gross proceed raise, we felt the timing was right based on all the momentum that we had during the year, on the product with the announcement of QSE-5, the manufacturing process with the Raptor equipment and having passed site acceptance, and then all the customer transactions that Jagdeep mentioned, where we're working with a prospective launch customer in the automotive space for that initial high-visibility, small-volume launch. Moving forward, I would also highlight that in prior calls we are open to multiple different business models in the fullness of time. We see options with wholly owned capacity as is the case with the QS-0 joint venture relationships, which you're well familiar with, as well as licensing relationships. And separately, as we've also discussed on prior calls, there's a lot of momentum behind investments in clean energy, specifically closed-loop, domestic supply chains here in the United States. Those are also things which we track those opportunities to be as capital-light and efficient with the capital that we do have as possible.

Maybe the last question I'll ask is, with everything happening around UAW and globally, have you noticed any of your partners pulling back from their relationships, timelines, or partnerships with you?

I would almost say the opposite. I think with turmoil in the world and the growing realization for the importance of the penetration of electric vehicles, both the direct and indirect jobs they can bring, and the importance to the environment, that we actually see more excitement around the space. And then within that, what differential battery technology like we're working with has the promise to completely shift out the power and energy frontier as our QSE-5 does, while eliminating as manufacturer one of the two components. It’s a pretty amazing thing, and we remain excited. And as we’ve talked about, that’s just the start of what our technology platform promises.

Thank you, guys.

Your next question comes from the line of Jordan Levy with Truist Securities. Your line is open.

Hi, team. This is Henry on for Jordan. I just want to firstly touch on the CapEx savings you all have realized so far and expect to realize by the end of the year. Just want to touch on, I guess, any color you can add around some of the different puts and takes there. Was that material costs kind of coming down, more efficient installation to processes, and are there any learnings you guys are going to take or can take into 2024 and beyond?

It's a good question. We think about this in terms of big projects and small projects. We regularly come together as a team to explore ways we can work smarter to save on capital expenditures, and the same goes for operating expenditures. The entire company has embraced the concept of spending more wisely and effectively. We also encourage and celebrate the ideas that employees propose and put into action. When you analyze it, the one-third of savings I mentioned is actually derived from many smaller projects, which is a credit to the entire company for recognizing this. As we shift from being a product development company to one focused on manufacturing, this mindset needs to be ingrained in our culture.

Awesome. That's great to hear. And then just a quick follow-up on some of the recent graphite export news out of China. I'm just wondering if you guys are seeing at all any boost in interest in your technology with some of these geopolitical risks around battery materials kind of starting to play out a little bit. And do you think this will have a pretty large effect or pretty minimal in the long-term kind of demand for solid-state versus some of the other factors like higher energy density and the performance enhancements?

Henry, terrific question. From an industry point of view, our design eliminates the graphite anode materials from the cell, which this has two advantages. As you point out, it eliminates a supply chain bottleneck and associated risks of securing supply in a crowded market. And second, as you also alluded to, in eliminating the anode host material, we realize benefits in terms of energy density and charge time. Of course to do this, you will need a highly stable solid-state separator, which is our core IP.

Thank you, guys.

Your next question comes from the line of Chris Snyder with UBS. Your line is open.

Thank you. I wanted to ask on the A0 24-layer prototype cell. And specifically, that first chart in the shareholder letter, which shows the test results from a customer battery lab. Clearly really strong results there. But the letter does note that this was the best performing cell. So maybe could you just frame this a little bit more for us, whether it's kind of was this one cell out of how many, anything around just the delta between this particular cell. Was it a big outlier? Are they all generally similar? Any way to just kind of frame that more. Thank you.

Sure. I'm glad to provide clarification. As we've mentioned frequently this year, we're focused on improving reliability, which is a key area for us to ensure that every cell performs at the highest level. That said, the capacity retention curve we're showing is quite similar to what we've observed with most of the cells we've shipped. Essentially, the slope of this curve is comparable across the cells. This data indicates that when we manufacture cells with a low level of defects, we achieve an impressive performance level. Achieving 95% capacity retention after 1,000 cycles is, to our knowledge, unprecedented for a lithium-metal cell, whether solid or liquid. It's important to note that this test was conducted in our automotive OEM partner's lab, utilizing their equipment and testing protocols. We're excited because this result demonstrates the core technology's capability, which is the main goal of the A sample. Moving forward to the B sample, we will focus on implementing this capability in production processes, where reliability becomes crucial. In summary, the capacity retention curve we presented is consistent with our overall findings. While we do need to enhance reliability to ensure every cell lasts, we're truly excited about this result, which highlights the potential of our lithium-metal zero-anode design.

Yes, no, happy to hear that, and really appreciate all that color. Maybe for my second question, I wanted to ask on the consumer electronics. At QuantumScape, historically, you guys have been focused more on the auto market. This year you've talked more about consumer electronics opportunities, the letter talked about a technology evaluation agreement with a leading electronics player. So, I guess my question is, do you think the company's first commercial product that generates revenue is more likely to be in auto or consumer electronics? Thank you.

Thank you for the question and the opportunity to clarify this. I want to be clear that our primary focus has been and continues to be automotive. This is the area where our initial launch customer operates, and these are the partnerships we're closely engaged with. We discuss consumer opportunities because we have a technology platform that has garnered interest from various sectors. We believe it is our responsibility to explore these options for our investors while maintaining our focus on automotive. If we spread ourselves too thin, we risk performing poorly in all areas. We prefer to excel in one field, and we believe the automotive sector is the largest in terms of size and growth potential. In summary, our focus remains the same, and automotive is our primary market. However, we have a single-track dual-purpose design, meaning that our current product has applications in both automotive and consumer spaces. For now, we can serve both markets, but if we move towards consumer products, we will need to make modifications. For the time being, we will continue to prioritize automotive while also collaborating with some consumer partners.

Thank you, Jagdeep. Appreciate that.

Of course.

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

Hey, Jagdeep, Kevin, and team. Thanks for taking my questions. I was hoping we could maybe just go back to the first chart that Chris noted in the shareholder letter. I guess I'd just be curious as to why the prospective launch customer ran the test at a C/3, C/2 charge, discharge. Just kind of curious why they wouldn't run like a 1C.

That's a great question. The prospective launch customer chose to run the test at C/3 and C/2 because that was their preferred method. Many of our tests are reported at 1C-1C for two main reasons. First, 1C-1C is more aggressive as it charges and discharges the entire battery within an hour, which is challenging for a battery in a vehicle. To achieve such a discharge, you would need to use up around 300 miles of charge in just one hour, which is quite difficult. Additionally, charging a battery in one hour is generally categorized as supercharging, and most automotive manufacturers do not consistently use superchargers for every charge session. We report this way because we believe our technology can handle it and it enables us to gather data more rapidly, leading to a quicker cycle time. This, as you know, is crucial for learning, improvement, and execution. However, from the perspective of our customer, a C/3 charge might be more reflective of what typical automotive manufacturers encounter, such as a three-hour charge. If you plug your car into the garage overnight, it could even take longer than that. That's what seems to be standardized by them along with the C/2 discharge. We're simply sharing data provided by this automotive OEM customer, and they set the test conditions. We find it significant that the capacity retention observed with the 24-layer cell is truly impressive. This is worth noting because when we went public a few years ago, there were questions about whether we could achieve the same results in multilayer cells as we did in single-layer cells. This data shows that we can indeed replicate our success in multilayer configurations, specifically in 24-layer cells, which corresponds to the layer count for our first commercial product, QSE-5. At this level, we're seeing what we believe is leading performance in capacity retention compared to other lithium-metal cells available, making it an important data point to share with investors, particularly since it was generated in a customer's lab with their test protocols and conditions.

Thanks, Jagdeep, for the clarification. I have a quick follow-up. You mentioned the layer count, and a goal this year is to increase cathode loading. Last quarter, you showed a higher cathode-loading cell with only a couple of layers. Is there any update on its performance, cycle life, and capacity retention? Also, when can we expect data that combines the higher layer count with the increased cathode loading? Thanks, everyone.

Yes, that's a great question. We are currently focused on enhancing the 24-layer cell we shipped last year, which is the data we've referenced in this letter. Our plans include adding a higher-loading cathode and more efficient packaging, such as thinner adhesive layers, narrower margins at the edges, and thinner current connectors. We're also making improvements to reliability. This will result in the QSE-5. We expect to have this ready sometime in 2024. Generally, the testing results from the higher-loading cathodes are in line with what we've seen previously, indicating that while we still need to work on reliability, the overall performance in terms of capacity retention and fast charging is quite good. We even published fast-charge results in our last earnings letter for your reference. In summary, in 2024, we plan to combine this 24-layer cell with the higher-loading cathode, more efficient packaging, and the reliability improvements we're implementing in our process.

Yes. We did publish fast-charge data in the Q2 letter. And then also, it is more capital-efficient to do development work on a smaller layer count as possible. So, just another example of us being as effective and prudent with capital as possible.

Got it. Thanks for that, Kevin. Thanks, guys.

Yeah, good question. Thanks, Gabe.

There are no further questions at this time, I will turn the call to Jagdeep for closing remarks.

Okay. With that I'd like to thank you all for joining us. I'd also like to thank our team for their excellent work this quarter and, of course, thank our shareholders for their continued support of our mission. I look forward to sharing more as we continue ahead.

This concludes today's conference call. Thank you for joining. You may now disconnect your lines.