Good day, and welcome to QuantumScape's Second Quarter 2025 Earnings Conference Call. You may begin your conference.

Thank you, operator. Good afternoon, and thank you, everyone, for joining QuantumScape's Second Quarter 2025 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 for future financial or operating performance. Our expectations and beliefs regarding these matters may not materialize; actual results in the 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 signed 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 CEO, Dr. Siva Sivaram, and our CFO, Kevin Hettrich. With that, I'd like to turn the call over to Siva.

Thank you, Dan. Today, we announced an expansion of our existing collaboration and licensing agreement with Volkswagen Group's battery maker PowerCo. This upgraded deal sees PowerCo contributing additional payments of up to $131 million to QS over the next 2 years to support our joint commercialization activities. These payments are connected with certain milestones to be achieved by the joint scale-up team. The first milestones linked to expected payments of more than $10 million have already been achieved. These new payments are additional to the previously announced $130 million that will be due to QS upon satisfactory technical progress and execution of the full licensing agreement. As part of this upgraded deal, QS will prioritize the output of QSE-5 cells from our San Jose pilot line to support our joint activities with PowerCo, though we maintain our nonexclusive arrangement and retain the right to provide cells to our other prospective customers. This expansion would allow PowerCo the right under the licensing agreement to produce up to an additional 5 gigawatt-hours of QS cells annually, including for customers outside the Volkswagen Group, for a total of up to 85 gigawatt-hours. PowerCo has also secured the future right to license certain advanced QS technology beyond our first-generation QSE-5 platform. This upgraded PowerCo deal, with new cash payments of up to $131 million over 2 years, clearly demonstrates the value of our solid-state lithium metal technology platform to the automotive sector. We are extending our cash runway forecast into 2029, a 6-month improvement relative to our previous guidance. Now a word on our commercial engagement beyond PowerCo. We are happy to report that we have now entered into a joint development agreement with another major global automotive OEM. This JDA strengthens the collaboration beyond our initial sampling agreement with this customer, with the intent to work towards the commercialization and licensing deal. We continue to collaborate closely with existing and new customers, and we see market traction accelerating as these announcements provide commercial validation and increased urgency in the automotive space. With respect to our broader QS ecosystem, last quarter, we announced an agreement with Murata Manufacturing to explore collaboration on ceramics production, and this effort is progressing well. Beyond their world-class ceramics expertise, Murata provides particular value as a highly respected partner in the Japanese market, where we see strong demand for solid-state batteries in automotive applications. Our Japanese subsidiary, QS Japan, is a valuable asset in demonstrating our technology leadership to this market. Now an update on our annual goals. On June 24, we announced the completion of our first of our annual goals. Our next-generation Cobra process has replaced Raptor as our baseline separated production process. We expect this step-change in efficiency and productivity will enable B1 sample shipments this year, and we will continuously improve all aspects of the Cobra process as we ramp production. To keep pace with this higher rate of separator production, we are installing higher-volume cell production equipment, and we remain on schedule to meet this second 2025 goal. Production ramps are always challenging. And as we scale our cell production, we are focused on improving metrics such as cell reliability, process stability, and equipment performance. Turning to our launch customer. In Q2, we shipped QSE-5 cells for pack integration and testing, including safety testing. These cells were the final Raptor-based B0 samples to be shipped. Future shipments will be Cobra-based B1 samples in line with our third annual growth. This launch program is designed to be a low volume, high visibility project that will allow us to put ourselves into a real-world vehicle application and generate customer feedback. We continue to target 2026 for the beginning of field testing. Last, I want to address our strategic outlook. This quarter is a major inflection point in our journey, and we are now firmly in the commercialization phase of our company. We believe this expanded deal with PowerCo is an unambiguous demonstration of both the economic value of our solid-state platform and the power of our capital-light business model. Under this model, we have the ability to monetize development activities early on and then collect licensing royalties as our customers ramp production volumes. We are just getting started. We have long and deep relationships with additional auto OEMs, and we continue to see these engagements intensify, as demonstrated by our new JDA with an existing automotive customer. We believe our technology platform has the potential to revolutionize the automotive industry as well as other rapidly emerging markets, amounting to a total addressable market in the hundreds of billions of dollars annually. The challenges of scaling production remain significant, and there is still much work left to do. But working together with our world-class partners, we believe we are closer than ever to achieving our long-term goals. With that, let me hand things over to Kevin for a word on our financial outlook.

Thank you, Siva. Capital expenditures in the second quarter were $8.3 million. Q2 CapEx primarily supported facilities and equipment purchases as we prepare for higher volume QSE-5 B1 sample production using the Cobra separator process. We narrowed the range of our full-year guidance for CapEx to be between $45 million and $65 million. We expect the second half of 2025 to see higher levels of CapEx investment relative to the first half of the year, consistent with our narrowed guidance. GAAP operating expenses and GAAP net loss in Q2 were $123.6 million and $114.7 million, respectively. Adjusted EBITDA loss was $63 million in Q2, in line with expectations. The table reconciling GAAP net loss and adjusted EBITDA is available in the financial statement at the end of the shareholder letter. We continue to streamline operations in line with the company's capital-light licensing focus and capture gains from cost reduction initiatives and process improvement, including the Cobra process. We narrow the range of our full-year guidance for adjusted EBITDA loss to be between $250 million and $270 million. The amended PowerCo collaboration agreement features payments up to $131 million over the next 2 years. Actual payments will be based on the scope of work and approved by the QS PowerCo Steering Committee. In Q3 2025, we expect to invoice PowerCo for more than $10 million for development work already performed by the joint team. We ended Q2 with $797.5 million in liquidity, and in light of the expanded PowerCo deal and efforts to further streamline operations, extend our guidance for cash runway into 2029, a 6-month improvement over our previous guidance. Any additional funds from other customer inflows or capital markets activity would further extend this cash runway. As always, we encourage investors to read more on our financial information, business outlook, and risk factors in our quarterly and annual SEC filings on our Investor Relations website, including today's PowerCo amendment press release and 8-K with the redacted amendment.

Thanks, Kevin. We'll begin today's Q&A portion with a few questions we received from investors or that I believe investors will be interested in. Siva, what is the significance of this expanded agreement with PowerCo? How does this fit in with our licensing business model?

Dan, building upon what we just announced, our vision for the business model provides 2 sources of cash inflows. On the front end, we will monetize development activities for our customers to tailor our core technology to meet their specific needs. Subsequently, as the customer ramps production, we realize royalties over the lifetime of the project. Some of these payments could take the form of licensing fees or royalty prepayments as in the PowerCo deal. As we continue to develop further generations of our technology, we will maintain both lines of business to generate consistent and compelling cash flows. Payment for development activities has the benefit of being near term. The royalty payments represent the majority of the value capture through a consistent long-term stream of high gross margin revenue. This business model is unlocked by a highly differentiated technology platform. This expanded PowerCo deal is a validation of this vision with about $0.25 billion to bring this technology to market. This program will serve as a proof of concept of the QSE-5 technology and support other programs targeting VW Group vehicle applications such as vehicle demo fleet and other programs under the scope of the overall project covered by the collaboration agreement. The intention of the program is to leverage the combined expertise and resources of QS and PowerCo to advance the QSE-5 technology, ensuring its readiness for commercial application in the automotive industry. As part of this deal, PowerCo will be contributing up to $131 million to QS in order for a joint team in San Jose to accelerate the scale-up of QS technology. The agreement enables earlier PowerCo engagement in the QSE-5 production and automation efforts, advancing the ramp-up of the QS San Jose pilot line. You can see that this expanded agreement is a clear signal of the growing strategic technical and financial alignment between our two companies and reflects our shared confidence in QSE-5 as a game-changing platform for the battery industry.

Thanks, Siva. Kevin, can you expand more on the financial impact of this expanded agreement?

The most important thing for investors to understand is that these are cash inflows from a customer. We expect these payments will reduce our GAAP net loss, improve our bottom line result, and help extend our cash runway. In Q3, we plan to invoice PowerCo for more than $10 million tied to development activity already performed by the joint team. Our preliminary assessment is this will not be recognized as revenue. The work to determine the accounting treatment is ongoing. We will provide an update on the Q3 call. One further point, our narrowed adjusted EBITDA guidance is driven by operational improvements and does not reflect potential upside from this expanded PowerCo deal. We'd encourage investors to read our Form 10-Q, including the risk factors, as well as the amended press release, 8-K, and the redacted amendment for more information.

Thanks, Kevin. Siva, can you elaborate further on the joint development agreement with a second major global automotive customer?

Dan, this is one of our existing customers with whom we have had a sampling agreement. We have now entered into a JDA with the intent to progress to a full commercialization and licensing arrangement with a global automotive manufacturer. We are upgrading our relationship, deploying our high-touch model to develop a customized solution for their needs, and ultimately progressing to a full license arrangement along the same lines as our PowerCo deal.

Last month, we announced that the Cobra process has been baselined. Why was that such a significant accomplishment?

Dan, let's look at the big picture. We don't believe any solid technology can achieve the kind of no-compromise performance in range, charging speed, safety, etc., without a ceramic separator. The ceramic separator is a key part of our anode-free, graphite-free lithium metal architecture. Cobra takes this technology differentiation to a whole new level. It's really a transformative innovation in ceramics processing. Taking technical ceramic production and improving the heat treatment by more than 200 times is unheard of in the industry. Because of this advantage, Cobra is the most important technology element per gigawatt hour scale production. In the near term, this is what we'll be using to produce our B1 samples later this year. And over the long term, it's what our ecosystem partners will be using to ramp their production. And as impressive as Cobra is today, we believe that Cobra has significant headroom to improve even further. Now that it's in our baseline, our systematic and iterative improvement process will allow us to continue to build out and enhance the Cobra technology portfolio.

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

Our first question comes from Winnie Dong with Deutsche Bank.

You talked about another global automotive OEM, which you now have a JDA agreement with I was wondering if you can elaborate a bit on the agreement. It seems like there are still more steps to take this for an official licensing deal is signed. Can you just elaborate on what else needs to be done, what the OEM is sort of looking for before they sort of going to or come in?

Winnie, thanks for the question. So the second deal which is announced after the expanded PowerCo agreement is that we have signed a JDA with a global auto major OEM. Here, our job is to make sure we take our technology platform and adapt it to this customer's needs. So the JDA does exactly that; make sure that their specifications, the product that they need, we adapt our technology to that. Once we get that going, the same playbook that we have used with PowerCo. That same model applies that we, as a joint team, will make sure that we are transferring the technology to them to then ramp in volume. So the playbook has been defined with the PowerCo agreement, and we are doing the same thing into our next customer as we had originally planned. And we have had this JDA now signed and ready to go.

Got it. And then you mentioned the first milestones are linked to initial expected payment of $10 million has already been achieved and you started to invoice that starting Q3. I was wondering if you can maybe delineate or outline some of the details on one of the associated with the mix set of milestones and then subsequent payments? And how should we sort of understand that in the context of the original $130 million versus now the expanded agreement will provide you an additional up to $131 million.

Winnie, just to make sure we are clear. This $131 million we just announced is distinct from the prior $130 million licensing prepaid that we had announced that when we achieved certain milestones and we enter into the final licensing agreement, they pay us. This expanded agreement is really for the joint QS PowerCo scale-up team. The team is already here. We are together starting to do the industrialization activities. And this is our way of monetizing those collaboration activities. So we think in terms of our business model having 2 cash flow streams, the first cash flow being what we just talked about adapting our technology to our customers' needs, industrializing and transferring it. And the second one is the longer-term licensing and royalties payment. These 2 streams, these 2 cash flow streams are distinct, and we are now demonstrating the first one; which is that in the short term, we are starting to monetize our joint development activities and getting a cash flow stream out of it. And as this team is already here, we are starting to work together. And for some of the work already performed, we are starting to invoice PowerCo for that money. And there's a joint PowerCo QuantumScape Steering Committee that runs this. And based on the statement of work, the Steering Committee will approve the invoices that we'll continue to do with PowerCo. And so this is $131 million over 2 years.

Yes. And if I can just sneak one in. I think Kevin mentioned that preliminarily, the payment that you will state to invoice is not going to be treated as revenue. So just so for future, like how do we sort of understand what flows through to how the treatment is going to be like from an accounting standpoint?

Winnie, thank you. Yes, we did mention that we do expect this to improve the bottom line and not be revenue. On the Q3 call, we'll give more of an update on the accounting treatment.

Your next question comes from the line of Jed Dorsheimer with William Blair.

Congrats on the VW expansion. That's great news. Dialing in a bit more on that. Can you give us some color on what part of the manufacturing process, which part of the line are you going to be investing in to increase the pilot capacity and maybe some idea of what you're expecting for an end capacity of the pilot line and a timeline expected to ramp?

Mark, thanks for the question. Just to be clear, we don't intend to be a manufacturing company. We are always going to be a high-touch technology licensing company where we develop the technology and develop and industrialize it and then transfer it to our customers. Having said that, we just announced Cobra, which gives a 25x improvement over Raptor, 200x over what we had done earlier in 2023. And to match that level of separator output, we are increasing the cell build capacity so we can produce enough samples for us for this activity of industrialization of the core QSE-5 technology platform, which is what we are going to be doing. And the output of it is primarily going to be used for the joint activity by this joint scale-up team. And the expectation is that I want to be a little bit boring here, the idea of it being a systematic, methodical iterative process that we do on our pilot sample production line will be done by this joint PowerCo-QS scale-up team, and this $131 million is geared towards those product lines.

And then, Mark, just to draw that out between what Siva was mentioning in our annual goals when we set out the goals for the year, this is how we hoped it would play out after achieving the first goal of baselining Cobra production, which we did in Q2. The second goal with that 25x higher productivity relative to Raptor is to lift the production capacity of the downstream assembly equipment to keep up with that significantly higher flow coming from the Raptor process.

That's great. I appreciate the details. I hope that the increased volumes will speed up the iteration process. It would be nice. It's also great news about the capacity. The VW agreement continues to grow, which is excellent. We are now at 85 gigawatt-hours, which is double what Tesla produces at the Nevada facility with Panasonic. What do you think VW needs to see in order to start investing in a large facility to begin tackling the significant licensing opportunities you have?

Yes. So I want to be very careful not to speak for my customer, Mark. It is theirs to decide how they ramp the factory at the rate that they do. Having said that, this expansion of the relationship clearly demonstrates that our interests are very aligned in this. We want to make sure this technology is transferred to them so that they can ramp and move very, very quickly. You can go to their site to see all the factories that they are building and what application they're going to be doing, etc. Our partnership has been very, very strong. As I keep saying, there is a joint scale-up team physically present in San Jose to accomplish this.

Appreciate that. And if I could squeeze one last one in. I know you don't want to be a manufacturer, and I fully appreciate that. But now you do have some capacity in a pilot line in the United States with high-energy density battery. So I'm wondering if you've gotten any increased engagement from maybe U.S. defense contractors or drone manufacturers given the executive orders of the Trump administration on drones?

Yes, I want to discuss two related points, although they may not directly answer your question. One limitation of lithium-ion batteries is the reliance on graphite, which is predominantly sourced from China. There’s minimal domestic production of graphite in the United States, and its production is environmentally challenging. The ideal solution to avoid graphite is to eliminate the need for an anode, which is precisely what our technology offers. We are a U.S. company specializing in lithium metal anode-free technology. Additionally, I want to emphasize that we are carefully developing our ecosystem. The QS ecosystem allows potential customers flexibility in utilizing our technology and scaling up their operations. We've taken great care to expand our ecosystem to accommodate a variety of new applications.

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

Congratulations on the two announcements regarding the JDA and the expanded PowerCo. How many potential customers can you handle at once? I am curious about this from the perspectives of your employees, bandwidth, and equipment. Additionally, will you require a new Cobra for the JDA and the backend for the cells? Any insights on this would be appreciated.

Ben, you're thinking just like what you are thinking; you're absolutely right. There is an upper limit on how many we are going to be handling at the same time because we want to make sure we protect this technology to chosen customers with whom we can scale in high volume because we want it to be a high-touch model. We had mentioned in our last earnings call that we were working with 2 other auto OEMs, and we just signed one of them. We will be careful in choosing how fast we scale. You are right that we have to be making sure that we keep the intellectual property for each of them well protected, each of our customers, and making sure that we are servicing them very, very well. We have accounted for all of this in our current plans. And we will make sure that we keep updating you as we do sign more customers.

And then just maybe one more. On the expanded PowerCo agreement, you mentioned up to 85 gigawatt-hours and then how it wasn't exclusive. Could you just talk more about how different the process is to make, keep it not exclusive from what's under the PowerCo? I guess it follows on to the similar tech question from before with the next customer, do you have to change the process or how much difference is it than what you're doing with the PowerCo?

Just to be clear, we do have a nonexclusive arrangement with PowerCo. PowerCo has been our first customer, an amazing partner, and we are working very well with them. Clearly, each auto OEM has their own specifics on how they like their batteries and the product specifications that they like to use. We have developed a core technology platform, which we then work with each of them to modify. Some can be maybe form factor change. Some of them may be specifications tightened in one way or the other. Many such things will be customized for each of them. And that's exactly what we are doing right now. The first generation is being customized for PowerCo, and the second JDA envisions doing the same thing for the second customer.

Your next question comes from the line of Gabriel Gonzalez with UBS.

This is Gabriel on for Joe. Kevin, just wanted to touch on the original $130 million prepayment. Can you give us some high-level color on how that's progressing generally? And what's the ballpark expectation of when that comes to fruition?

Thank you, Gabe. As we stated in the press release last year, the joint QS PowerCo team needs to make satisfactory technical progress towards QSE-5 industrialization, after which we grant PowerCo license, and they make the $130 million prepayment. Our public goals are aligned with that technical progress, and we just need to keep our heads down and keep executing.

Understood. Okay. And it's encouraging with the new $131 million upgraded deal from PowerCo that you extended the cash runway into 2029. However, the stock has also had quite an impressive rally in recent weeks. So given where we stand now, how are you thinking about sort of tapping into the equity markets here to further shore up the cash position on the balance sheet?

Our job as a management team is set out to do important things that create value for the company and to do so systematically, methodically, and iteratively. We value a strong balance sheet. It's a differentiator for the company, and we commit to continue to be strategic regarding any capital markets activity.

Your next question comes from the line of Mark Delaney.

This is Aman for Mark Delaney. Regarding the expanded agreement with PowerCo, could you discuss the implications for both OpEx and CapEx? I appreciate the clarification on the $10 million not being recognized as revenue. How should we consider its impact on EBIT? Is there any associated margin with that revenue? Any additional insights you could share would be helpful.

Thank you, Aman. Just to highlight a few things that I mentioned before. So in Q3, we planned to invoice PowerCo for more than $10 million for development activity already performed by the joint scale-up team. This will mark the first meaningful non-dilutive cash inflow from a customer. We expect this will improve the bottom line. Our preliminary conclusion is this will not be accounted for as revenue, and the work to determine the accounting treatment is underway, and we plan to provide an update on the Q3 call. We would encourage investors to read our Form 10-Q, including the risk factors as well as the press release and the 8-K. The 8-K does include a redacted form of the amendment.

Understood. Just to kind of maybe follow up on that. So is there any incremental, maybe to phrase it a little better. Is there any incremental OpEx or CapEx under the expanded agreement? Or is this just kind of payments for the already existing OpEx and CapEx that was planned for?

That's a good question. Our long-term operational plans included the bulk of the work and the statement that work. So from that point of view, these inflows are accretive.

Understood. My second question is about the JDA. What milestones are we looking at? I know you mentioned the need to align the specifications with the customers' requirements. Can you provide any specifics on the technical milestones or the timeframe for achieving them? Additionally, how much bandwidth do you have to support this while still prioritizing the PowerCo agreement under the new deal?

Aman, just like Kevin just alluded to, these are already in our longer-term plans. And so this work is also in our works already. And the second JDA is something, obviously, we announced the possibility of in the last quarter, and we are following through it. And so these are well accounted for in the financials that we have put up.

As a technology licensing company, our first job is to develop differentiated technology. And as you know, in a licensing business model, there's a lot of operating leverage. We celebrate the opportunity to specialize and tailor our technology to their specific needs towards that 2-phase cash flow set of cash inflows that Siva mentioned, both to monetize the upfront tailoring under the collaboration phase towards longer-term royalty inflows as we jointly have success helping them scale up their factories.

I will now turn the call back over to Siva for closing remarks.

Thank you, operator. I'd like to thank our employees for their dedication, our partners for their trust, and our shareholders for their continued support. We look forward to updating you on further progress in the months to come. Thank you.