Earnings Call Transcript - TE Q3 2023

Operator, Operator

Thank you for standing by. My name is Jessica and I will be your conference operator today. At this time, I would like to welcome everyone to the FREYR Battery Third Quarter 2023 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. I would now like to turn the call over to Jeff Spittel, VP of Investor Relations. Please go ahead.

Jeffrey Spittel, VP of Investor Relations

Hello and welcome to FREYR Battery's third quarter 2023 earnings conference call. With me today on the call are Birgir Steen, our Chief Executive Officer; Oscar Brown, our Chief Financial Officer; Jan Arve Haugan, our Chief Operating Officer; and Jeremy Bezdek, Executive Vice President of Corporate Development and President, FREYR Battery US. During today’s call, management may make forward-looking statements about our business. These forward-looking statements involve significant risks and uncertainties that could cause actual results to differ materially from expectations. Most of these factors are outside FREYR’s control and are difficult to predict. Additional information about risk factors that could materially affect our business are available on FREYR’s S-1 and annual report on Form 10-K filed with the Securities and Exchange Commission, which are available on the Investor Relations section of our website. With that, I'll turn the call over to Birgir.

Birgir Steen, Chief Executive Officer

Thanks Jeff and hello to everyone for joining today's call. We'll start today with an overview of what we believe is FREYR's compelling equity story, where our value proposition is based on the premise that electrification is inevitable and will require reliable mass deployment of batteries. But in today's higher-for-longer cost of capital environment, the companies who will emerge as the next leaders of the energy transition must balance growth aspirations with rigorous financial discipline. Our team at FREYR is unified in that vision, and we're committed to building upon a unique competitive position with that approach. With that in mind, we're excited about the opportunities we have to establish FREYR as a leading developer and scaler of battery technologies across the energy storage and electric mobility sectors. Tesla asserted earlier this year that the long-term growth potential in our core markets is profound and aligned with decarbonization initiatives, Western energy security, and public policy impetus highlighted by the Inflation Reduction Act in the United States. As stewards of your capital, our responsibility is to maintain the liquidity we need to convert these opportunities, which are punctuated by a growing universe of real options, into lasting shareholder value. We intend to do that by protecting our strong balance sheet and deploying capital selectively while we advance our ongoing transformation initiatives: diversifying on the technology spectrum and across the battery value chain, maximizing IRA incentives, and developing our highest-return projects. Turning to slide four, let's review our key messages this quarter. As you saw on this morning's release, we're contending with a delay in our progress to fully automated production at the Customer Qualification Plan, or CQP, and we have implemented a detailed plan to address the complex challenge of scaling the 24M semi-solid platform. In light of the current CQP calendar, the U.S. team has rescaled Giga America to pursue the full-scale project on two parallel tracks. Track one is based on the 24M semi-solid technology. Track two is to leverage conventional technology. As Jeremy will document shortly, these two tracks are not mutually exclusive options for the Giga America site, and they're aligned with our strategy of expanding across the battery technology spectrum. Turning to the Giga Arctic project, we have elected to minimize spending in 2024 while our work continues at the CQP and while we engage with Norwegian and European government stakeholders to establish framework conditions that place the project on globally competitive economic terms. Moving to slide five, the playbook to navigate today's high-volatility environment is as follows. We're initiating a cost rationalization program to reduce our total run-rate cash spending by over 50% in 2024, which will extend our liquidity runway to two-plus years. Oscar will elaborate on this shortly. While we safeguard our balance sheet, we won't be able to move as quickly as we'd like in the front end, but I want the following point to be clear: FREYR is not going into hibernation. We'll continue our important work at the CQP where we will hold our vendors and partners jointly accountable for our progress. We're pursuing conventional technology partnerships which will mitigate the risk to the business and open new opportunities. We will continue to fund critical initiatives that we believe will generate value for our shareholders, and we will advance key priorities while maintaining the strategic flexibility necessary to operate in today's high-volatility dynamic. To slide six, here's the latest on the CQP. The timeline to achieve automated production of inspected cells has pushed beyond our previous goal of the fourth quarter of 2023. Commissioning of the casting unit and cell assembly equipment, which is highly complex, is proving to be more difficult and time-consuming than we previously envisaged. We're attempting to scale a new battery technology with intricate next-generation equipment, which has and will continue to pose engineering challenges. Our response to these challenges is to implement a plan to prevent further delays. We have implemented changes in project governance. We're heightening coordination with our vendors and ecosystem partners, and we are elevating the involvement of our battery subject-matter experts and other relevant partners inside and outside FREYR. This initiative is supported by the formation of the Technology Advisory Board, comprised of some of the industry's foremost minds, including Dr. Dan Steingart, FREYR Board member and co-director of the Columbia University Electrochemical Energy Center. Dr. Steingart and his fellow advisory board members are drawing on their collective wealth of commercial and operating experience to assist our team at the CQP. Let's go to slide seven for a brief overview of our technology strategy. Our strategy has always been to establish FREYR's business across the technology spectrum and into value-creative adjacencies within the battery technology chain, and we are working on that front. We're pursuing conventional technology partnerships to complement the 24M semi-solid approach to unlock avenues to financing, commercial development, and potentially accelerate project development timelines. The conversations we're having are exciting and are a testament to the unique position we're establishing in the marketplace as an industrial partner of choice. The pursuit of technology diversification is intended to be complementary to and add to 24M semi-solid and in no way diminishes our excitement about 24M's potential as a fit-for-purpose solution across a variety of growing use cases. Although scaling the 24M platform at the CQP is proving to be more challenging than we anticipated, we believe we have the financial and organizational resources to do it, and we believe that it's a worthwhile investment of our time. Now I'll turn to slide eight and Giga Arctic. We announced this morning that we're minimizing spending on Giga Arctic in 2024 because we need to prioritize liquidity during the CQP scale-up and focus on capturing IRA incentives in the United States. We value our partners and supporters in Mo i Rana, where the CQP remains our first operating asset and the technological heart of the company. The higher-for-longer interest rate environment and introduction of the IRA have changed the business case for Giga Arctic. We must operate within reality, and today the project is no longer competitive in economic terms with the opportunities we have in the U.S. As stewards of your capital, we have a fiduciary obligation to invest in our highest-return projects and we intend to fulfill that duty by making sensible business decisions. While we minimize spending on Giga Arctic in 2024, we'll continue to work with stakeholders in the region and with European governments to develop framework conditions that are competitive with the IRA and other incentives, such as Canada's variable cost offsets under capital spending initiatives in other countries and the rest of the world — all of which are required to counter China's structural cost advantages and dominant market share across the battery supply chain. We look forward to engaging locally to promote establishing decarbonized battery production here in Norway. In the interim, we will spend previously committed capital expenditures on Giga Arctic to secure the asset and preserve the option value of the project. With that, I'll turn the call over to Jeremy.

Jeremy Bezdek, Executive VP of Corporate Development; President, FREYR Battery US

Thank you, Birgir. Please take a look at slide nine for the Giga America update. As we highlighted in the second quarter earnings call in August, continued feedback from potential investors related to the Giga America financing has emphasized the importance of technology validation at the Customer Qualification Plan. The CQP delays that Birgir mentioned have impacted our ability to close the Phase 1A two-line fast-track project financing within the previously discussed timelines. With that, the Giga America team has decided to take a refreshed look at the project and the business case. The value of the time advantage related to the fast-track project has decreased significantly, leading us to make the decision to terminate the two-line project. We see significant value in adjusting our focus to the larger project, Phase 1B, which was the original plan for the site. We believe that with validation at the CQP to come, we have the right roster of potential investors to secure the equity financing for a 24M-based production facility in Georgia. Additionally, the larger project aligns well with our DOE financing plan that Oscar will discuss. We are now working toward a potential final investment decision of the larger 24M-based project, along with potential DOE and equity financing, at some point late in 2024. Additionally, we are pursuing a second track for Giga America as Birgir mentioned. We are currently in multiple conversations with potential conventional technology partners around advancing a project utilizing conventional technology at the Georgia site. Due to the much lower technology risk involved with that option, timing for both final investment decision and startup production could provide us an earlier entry into the U.S. market. Our plan involves making a technology and partner selection in the near term, and we will announce that decision when the selection is made. We are excited about the opportunity to get into the U.S. market with production assets sooner, and the site in Georgia is large enough to accommodate both a conventional and a 24M production facility with plenty of room to spare. We look forward to providing you more updates on both tracks as we progress through the end of the year and into 2024. I will now turn it over to Oscar to provide a general finance update as well as an update on the redomicile effort. Oscar?

Oscar Brown, Chief Financial Officer

Thank you, Jeremy. On slide 10, we provide an update regarding our announcement to redomicile from Luxembourg to the United States. This move dramatically expands our opportunity for equity index inclusion. Today, only an estimated 3% of our shares are held by index funds, compared with a peer average of over 20%. Redomiciling has the potential to drive incremental holdings of up to 45% of our current market capitalization if we were held by all the index funds we would qualify for, as well as associated actively managed funds who benchmark against those indices. Moving our domicile to the U.S. also has the added benefit of aligning our company with the country that has offered the highest incentives for battery manufacturing at scale in the world, as well as the world's largest market for our products. The U.S. and Delaware have well-understood corporate governance and disclosure requirements, and we will still be able to maintain our European strategies alongside our U.S. efforts. The transaction to move from Luxembourg to the U.S. requires an extraordinary shareholder meeting, which is now set for December 15th for shareholders of record as of October 25th. The transaction requires 50% of our outstanding shares to vote to ensure a forum and two-thirds of those shares voting must vote in favor of the transaction for it to close. It's very important that all shareholders vote. Details of the transaction can be found in filings under FREYR Battery Inc. on the SEC's website and through links on our own website. We expect to close the transaction by year-end. Moving on now to slide 11, the financial update slide of the earnings deck, I will review our recent financial results. For the quarter ended September 30th, 2023, FREYR reported a net loss of $10 million or $0.07 per share compared with a net loss of $94 million for the same period last year. Last year's period was impacted by a $70 million non-cash loss on our warrant liability fair value adjustment due to changes in our stock price. This line item reflects a gain when our stock price declines during any reporting period and a loss when our stock price increases. For the third quarter of this year, we recognized a $24 million non-cash gain on this item. For the nine months ended September 30th, 2023, the company reported a net loss of $48 million or $0.34 per share compared with a net loss of $124 million or $1.06 per share in the same period of last year. More importantly, the company reported higher general and administrative expenses as well as higher research and development costs for the third quarter and the nine months ended September 30th compared with the same periods last year. Logically, this is a function of our larger organization, which has been managing more projects around the world. Looking ahead to 2024, we have initiated a significant cost-cutting and resource prioritization program focusing on the CQP and Giga America, which will significantly reduce our annual cash burn rate as we seek to extend our liquidity runway to more than two years and into 2026 and focus on those two projects before we raise additional capital. We expect a material reduction in G&A and capital commitments in 2024 compared to 2023. Regarding our cash investment rate and liquidity, we spent net cash of $235 million during the first nine months of 2023, which included $169 million on capital expenditures. During the third quarter, FREYR spent $41 million on capital expenditures, of which $32 million was spent on Giga Arctic and about $7.5 million was spent on the Customer Qualification Plan and test center. Capital expenditures were partly offset by receipt of a $3.5 million grant in the United States. We ended the third quarter of 2023 with $328 million of cash, cash equivalents, and restricted cash and no debt. For the rest of the year, our remaining capital expenditures will focus on completing and securing the initial buildings of Giga Arctic, as well as completing and ramping up the Customer Qualification Plan. Major additional capital expenditures in 2024 will be dependent on project-level financing as we preserve an ample burn rate and runway for the company. Our near-term priorities remain ramping up the CQP, securing the initial buildings of Giga Arctic as we continue to seek a globally competitive incentives package from the government of Norway, and progressing Giga America. We provide additional guidance on capital expenditures only upon the success of Giga America's initial capital raise, which we now expect in 2024 as it is tied directly to the successful automated production of batteries at the CQP and the testing of those batteries by our largest customer. While we continue to work with the Norwegian government on incentives programs throughout next year, we are not currently forecasting any capital expenditures for Giga Arctic in 2024. We expect capital expenditures in the fourth quarter of this year will be in the $40 million range and we expect that we'll end the year with cash and cash equivalents of approximately $250 million when G&A, R&D and Giga America costs are included. Again, any significant capital expenditures in 2024 will only be sanctioned once new financing is secure. Given our cash balances, expected spending through the year of 2023, and now reduced cash requirements for 2024 pending any new financing, we've ensured FREYR has a cash runway of more than two years. As a result, our total cash uses in 2024 will be less than half the amount of 2023, at least until we secure project-level financing. Slide 12 reemphasizes our key financial messages as we position the company for the current environment. Checking the balance sheet and taking actions within our control on costs and spending to extend our runway into 2026 are key focus areas. The actions we are taking now target an annual cash burn rate in 2024 of less than half of that in 2023 with the priorities already mentioned. This enables us to invest in some additional R&D and related items to enhance our manufacturing projects and our products, but we will proceed with those with caution as incremental technology investment would, of course, reduce our cash runway modestly. Again, we will not spend any meaningful capital expenditures until incremental financing is secured. Our pursuit of non-dilutive capital remains in high gear in this challenging financing environment. Given our liquidity position and our lower burn rate, we do not have any intention to raise common equity from our shareholders in 2024. As Jeremy described, project-level equity for Giga America is available and is clearly tied to getting the CQP up and running as designed and producing testable batteries and receiving acceptance of those batteries, which is now expected in 2024. In parallel, we continue to progress the U.S. Department of Energy Title 17 loan for the project and are awaiting invitations to part two of the process from the DOE. After receiving that invitation, we will file part two of the application, and then the effort becomes very similar to a project financing process, which we will run in parallel to ensure timely access to funds. The DOE could in theory provide for all of our debt capital ambitions, but more likely we'll be part of an intricate capital stack. We will keep investors informed over the next several quarters as we make progress on these efforts. Section 45X of the IRA, with its annual production tax credits, provides key underlying support to the financing of Giga America, unlike anywhere else in the world. In addition, we are staying vigilant for federal grant opportunities in the U.S. that could be applicable to our businesses. We'll continue to preserve the project financing option for Giga Arctic as well, and we recently announced that we were awarded a €100 million grant for Giga Arctic by the European Innovation Fund, the EUIF, which is an outstanding validation of our business model. The review by the EUIF has been very intensive, covering hundreds of pages of documentation over the course of the last year. We continue to work with them extensively to finalize the terms of the grant with a relatively flexible timeline to continue the project when globally competitive scaling incentive programs are available. While we have been grateful for the support and indications of interest expressed by a number of export credit agencies and multilateral institutions, it is important to note that FREYR has not received any cash from these entities so far and all progress on Giga Arctic and the CQP to date has been made without yet having received funding from any of these entities. With Giga America prioritized in large part due to its superior returns driven by eligibility for U.S. IRA production tax credits, we will also evaluate partnership-based upstream opportunities, address decarbonization of the supply chain, and leverage our growing Energy Transition Acceleration Coalition, the ETAC, and other industrial partnerships where possible. With that, I'll turn it back over to Birgir for additional comments.

Birgir Steen, Chief Executive Officer

Thanks Oscar. Before we take your questions, let's close with a look at FREYR's path forward on slide 13. In today's high discount rate environment, cash is king. We have a clean balance sheet with no debt, and we are reducing our costs to extend our liquidity runway to two-plus years and beyond. We will not authorize any significant new CapEx in 2024 until new financing is committed. We are pursuing conventional technology partnerships, advancing the redomicile into the U.S., progressing through the commissioning and 24M scale-up processes at the CQP. We will communicate news on all three fronts with the investment community as things develop. Our partnership approach to industrialization is generating dozens of interesting strategic conversations with our customers, with members of the Energy Transition Acceleration Coalition and other partners, all of which are focused on commercial opportunities and catalyzing FREYR's next wave of capital formation. In Norway and Europe, we're working with key stakeholders to establish a globally competitive incentive program while we preserve Giga Arctic's option value. And finally, we're executing our strategic plan with clear priorities. As we have learned over the last two and a half years as a public company, adaptability is paramount to succeeding in a highly volatile environment. I'll conclude by emphasizing our appreciation for the continued support of our investors and all our partners in our mission to decarbonize energy storage and transportation systems by producing the world's cleanest batteries. The FREYR team is unified in our purpose, and we're dedicated to rewarding your faith in us on this exciting journey. With that, I'll turn the call back to Jeff and we'll take your questions.

Jeffrey Spittel, VP of Investor Relations

Thanks Birgir. Operator, we're ready to open the line for Q&A.

Operator, Operator

Your first question comes from the line of Adam Jonas with Morgan Stanley. Adam, go ahead.

Adam Jonas, Analyst (Morgan Stanley)

Thanks everybody and appreciate the extra details on the cash outlook. That's helpful. But so much of the story really does rely on the technology of 24M. So at a high level, Birgir, how much of FREYR's success is tied to 24M? If this turns out to be a dud, when would you potentially be in a position to understand whether 24M really is scalable as you originally anticipated or not? Because it does seem that everything else kind of triggers off of that and I appreciate the diversification strategy, but it's important for shareholders to know how tied the entire story is to 24M specifically. So if you could realize it's a qualitative question, but I would appreciate your impressions, please.

Birgir Steen, Chief Executive Officer

Sure, Adam. As you indicate, we think in two tracks. We've now indicated for getting started in Giga America there is one track where we have some technology risk around 24M. The second track would be licensed conventional technology with essentially the opposite characteristic — some geopolitical risk but very low technology risk. So two uncorrelated paths, if you will. Inside of the 24M path, as we progress towards the last commissioning packages that we're delivering in the CQP and getting ready for production, we are encountering some of the harder work. It's fair to say we are discovering aspects of our chosen solution that may not have had the technology readiness level we would've anticipated earlier. That's just part of getting to this stage; it's very difficult to foresee upfront. All of that said, we haven't discovered anything that indicates this is not a viable way to get to scalable automated cell production, and we think we see a path through to that. We're making a few changes to debottleneck and unblock that path. We continue to have delivery of cells in an automated way at the CQP as company priority number one. Selected members of my leadership team start every day at 9:00 a.m. with a daily follow-up call to make sure we remove all blocks from the path in front of that. We have all fair battery talent now engaged at the CQP. We might have been more diverse in terms of priorities previously; now our focus is sharper. We have key vendors like Mpac, 24M and others onsite. Mpac is running double shifts, and we have thresholds for bringing more help on site when we discover we need it. We're aligning with other licensees. We have people on site with several of them and are making sure we learn the most from other teams and share experiences with those who are traveling at the same rate of speed as we do. We've also involved both customers and vendors directly in our daily standup follow-up meetings. Through all of this, we've created a lot more transparency. We have a better view of the runway ahead of us, and we are solving problems every day. At the same time, as I said, we're getting closer to the more difficult part, and that's what has extended the timeline. If we had a conclusion that said this is not going to be viable, we would of course have shared it, based on input from our Technology Advisory Board and the discussions we are conducting continuously. If anything, we're strengthening our belief that there is a very interesting technology path ahead of us, both in the current configuration of the CQP and in future generations of the semi-solid platform.

Adam Jonas, Analyst (Morgan Stanley)

Thanks Birgir. And just to follow up on the runway discussion: I was going to ask whether the two-year-plus runway began at the end of the third quarter or the end of the fourth quarter, but I think Oscar's comments about getting into 2026 answer that question, just confirming that the two-year-plus runway.

Oscar Brown, Chief Financial Officer

That's correct.

Adam Jonas, Analyst (Morgan Stanley)

Oscar, also I want to know whether that two-year-plus bakes in a minimum cash level to run the business for payroll expenses, et cetera, or whether that was a mathematical, down-to-near-zero cash flow. Sorry for the housekeeping there, but just wanted to ask whether you had a minimum cash in there, and if so, what that would be. And then what specific cost cuts are required? You alluded to in the release that you would take, in addition to pausing CapEx subject to project financing, what OpEx cuts are being considered, and are there any upfront costs related to those cuts? What I'm trying to get at, Oscar, is: is the two-year-plus runway a really conservative base case, something you really have line of sight to and that's achievable? Or is that more of a stretch goal?

Oscar Brown, Chief Financial Officer

Great questions, Adam. A couple of things to clarify: the runway of more than two years starts at the end of 2023. The amount of cash you need just to hold on the balance sheet to run the business for working capital is very low. From a burn-rate perspective, we'll have the quarterly burn well under $30 million a quarter. Also keep in mind when you look at 2023 and our cash spending, the largest component was Giga Arctic, which we're pausing now until we get any kind of new financing related to that. So that's a significant piece of the puzzle. We're now focused on the CQP and Giga America. We're looking at the organizational structure and have made a lot of progress there. So this is not an aspirational goal; this burn-rate reduction is happening right now and we're very confident in it.

Birgir Steen, Chief Executive Officer

I won't provide numbers on headcount today, Adam, but the priorities the company was pursuing until recently were broader than what we have now. We're very laser-focused on delivering results and expanding runway while keeping optionality around our operations. That's going to allow us to reduce headcount quite dramatically without affecting our key priorities. We've had all-hands meetings across the company today and we've begun the process of reductions in force where required. We're advanced in executing those in accordance with local regulations. As Oscar said, this is not aspirational; this is already in motion.

Adam Jonas, Analyst (Morgan Stanley)

Thanks Birgir and thanks Oscar. Just one last follow-up to clarify: the time to get to a sub-$30 million per quarter burn rate — is that something that will take a couple of quarters to settle on, given some adjustments to get there, including some one-time payments? Or do you have an idea of when a $30 million burn rate would be achievable? Presumably sometime in 2024, but is the first half achievable? Thanks.

Oscar Brown, Chief Financial Officer

Reemphasizing: the burn rate will be below $30 million a quarter, and it will be as of January 1. We will take a small single-digit, one-time charge related to severance, but you'll see this in Q1. Very clear: effective January 1, Q1.

Adam Jonas, Analyst (Morgan Stanley)

Right. Thanks.

Operator, Operator

Your next question comes from the line of Tyler DiMatteo with BTIG. Tyler, please go ahead.

Tyler DiMatteo, Analyst (BTIG)

Good morning, everyone. Thanks for taking the time and the questions. I wanted to follow up on some of the comments in the prepared remarks related to the CQP and the plans to prevent further delays that you highlighted, some comments about partners and vendors. I'm just curious how you are thinking about leveraging more of your partners and vendors to work through some of the CQP challenges you're undergoing right now. How can you really leverage those partnerships as you go into 2024? Any color there would be helpful.

Oscar Brown, Chief Financial Officer

It may be too much 'sausage making,' but every morning we get together and look at the critical path progress versus 24 hours ago. We have key partners and vendors involved once or twice a week, and those calls go through detailed plans and expectations from the vendors and detailed expectations from the customers. We have subject-matter experts from all three sides engaged in problem solving to identify roadblocks and remove barriers for the team on the ground. This creates full right-to-left transparency. We also share this throughout the facility so there are many more eyes on potential issues and solutions than before. So quite a bit of change in the operating model, all of it focused on unblocking and debottlenecking progress towards first sales.

Tyler DiMatteo, Analyst (BTIG)

Okay, great. And then at a higher level, given some of the delays at the CQP, does this change how you think about ESS versus EV, realizing that ESS was always the core near-term approach? Does this dynamic change your strategy given the current state of play?

Oscar Brown, Chief Financial Officer

I think the semi-solid technology has always been very promising for producing thick electrodes and thereby achieving electrochemical properties that are attractive for applications like energy storage systems. If anything, our conviction that this will be a very good market for the technology has strengthened. We're advancing and will continue to strengthen execution toward that market.

Tyler DiMatteo, Analyst (BTIG)

Okay, great. Thank you for the time. I appreciate it. I'll turn it back to the queue.

Operator, Operator

Your next question comes from the line of Gabe Daoud with TD Cowen. Gabe, go ahead.

Gabe Daoud, Analyst (TD Cowen)

Thanks everyone. Thanks for all the great detail this morning. I was hoping we could maybe level-set Giga America again. Going back to the original plans, could you remind us what the capacity targets are for both tracks? And any color on start of production from Giga America? I think the fast-track plan was two and a half gigawatt-hours at capacity, starting production by summer 2025. So maybe level-set and give us a little bit of an update on initiatives now at Giga America.

Jeremy Bezdek, Executive VP of Corporate Development; President, FREYR Battery US

Yeah, Gabe — thanks for the question. Some of this is still being worked as we're refreshing the business model, but here's where we are. On track one, as it relates to the 24M technology, because we are in the DOE process, the timeline to closing the financing and equity will likely line up with the DOE process. That will dictate when we can close financing, which then allows us to order long-lead equipment and that will determine the start of production. As we think about the DOE process for the 24M plant, that's likely to take us through most of 2024. We hope to be able to get a conditional commitment before the end of the year. If we're able to do that, we believe the equity financing will line up well with it. We will, of course, feel good about where we are at the CQP and be able to move forward with ordering long-lead equipment, which puts us in a start-of-production timeframe in late 2026. From a capacity standpoint, still somewhat to be determined — it depends on process design, which will be informed by CQP performance. My current estimate is probably in the range of 15 to 20 gigawatt-hours of capacity for that kind of plant, but that is still TBD and we'll report more in early 2024. On the second track, timing is a little more certain because you don't have the same technology risk. We're working with multiple partners to lock down terms around licensing conventional technology, and assuming we can do that in the short term, it likely allows us to beat the start-of-production timing I just mentioned for track one. There is no way to comment precisely on capacity for track two yet; that's still being negotiated with potential licensed partners. More to come.

Gabe Daoud, Analyst (TD Cowen)

Thanks Jeremy. Maybe as a follow-up, what are you looking for in a tech partner? I'd imagine someone with LFP experience given the market focus on energy storage. Anything specific you're looking for in a tech partner? And specifically regarding Nidec, could you pivot and have a phase-two be the sole source of supply for Nidec? Nidec doesn't necessarily care if it's 24M technology, is that correct?

Jeremy Bezdek, Executive VP of Corporate Development; President, FREYR Battery US

To your first question, for a conventional technology partner I do think we want to focus around LFP and focus on the ESS market. We're excited about the growth opportunities there and the speed to validation with customers. That will be important. As it relates to Nidec, our module partner, the 24M cell design is different from a conventional cell design, so it will be two different module designs that correspond to each cell. We're working very closely with Nidec on both track one and track two. The way we envision the relationship moving forward is to be as transparent as possible on what the cell design looks like so they can follow with module design and get us into a DC block product that the market desires.

Gabe Daoud, Analyst (TD Cowen)

Okay, got it. Great detail. Thanks Jeremy. Thanks, guys.

Operator, Operator

Your next question comes from the line of Alex Rappel. Alex, go ahead.

Alex Rappel, Analyst

Thanks for taking my question. With the rejiggering of plans toward Giga America specifically, how are you thinking about the offtake environment for ESS moving forward? When you came out earlier there was a panicked environment; today buyers are seeing price cuts and are more confident on supply in the U.S. Relative to either track one or track two, my understanding is you need to show some offtake to get through the DOE process. How are you thinking about the contracting environment in ESS and what underpins your excitement today versus two years ago?

Jeremy Bezdek, Executive VP of Corporate Development; President, FREYR Battery US

Thanks Alex. Committed demand drives price, so the market will be cyclical. We still believe the ESS market growth potential is strong, and there will be periods of better margins and periods of tighter margins. Relying on competitive advantages we can build into scale and our technology partners will help us manage the cyclical nature of what becomes a commodity-type market. No concerns about today's market; we feel very strongly about ESS growth. As it relates to offtake, yes, there will need to be offtake in either track to secure the financing we need. We feel good about many of the relationships we've established, not just with Nidec but with others as well. As we continue into 2024 and start to line up alternatives for both tracks, we expect you'll start to see some additional offtake announcements.

Oscar Brown, Chief Financial Officer

Just to add clarity, we haven't heard any objections regarding long-term supply agreements and moving volumes between Giga Arctic and Giga America. The notion of a Western-technology-based ESS solution is generating a lot of enthusiasm in the market; we're getting strong responses at trade shows and elsewhere. Coming with a technologically derisked solution plus a geopolitically derisked solution seems like a winning combination.

Alex Rappel, Analyst

Got it. Quick follow-up on the geopolitical versus technology risk: with U.S. reshoring and restrictions on origin of IP or ownership, how are you thinking about that path? If restrictions tighten, the semi-solid platform could be advantaged; if not, a conventional LFP solution could be advantaged. How are you positioning FREYR for those potential outcomes?

Birgir Steen, Chief Executive Officer

That goes to our strategic flexibility. In an environment with stricter restrictions on origins of IP, the 24M semi-solid platform will be advantaged. Conversely, an environment that doesn't go in that direction would derisk a high-maturity conventional LFP solution. We can play both sides of this argument. We're paying close attention, spending time to understand what's percolating, and staying close to parties that might provide non-dilutive funding to ensure we have a good picture of the risks.

Alex Rappel, Analyst

Got it. Quick follow-up on the capital plan for Giga Arctic: you talked in the past about the ability to cold stack. Are there any ongoing costs beyond capital that we should be aware of with the plan as it currently sits? I understand capital could resume with financing, but any additional costs to keep the option alive?

Birgir Steen, Chief Executive Officer

We see the cost of keeping the Giga Arctic option alive and possible to hot-start as being somewhere between $3 million and $4 million a year. So not significant in our runway perspective, as we've discussed.

Alex Rappel, Analyst

Got it. Thanks. I'll take the rest offline.

Operator, Operator

Your next question comes from the line of Jose Asumendi with JPMorgan. Jose, please go ahead.

Jose Asumendi, Analyst (J.P. Morgan)

Thank you very much. I want to come back to slide six. Can you provide a few more details regarding what's going on the ground? What changes are you making to prevent further delays? And can you elaborate a little bit more on this dedicated Technology Advisory Board? Thank you.

Birgir Steen, Chief Executive Officer

Our Technology Advisory Board is chaired by our Board member Dr. Dan Steingart from Columbia University, and he recently spent time at the CQP with our technology team. We're strengthening our in-house technology capabilities to ensure we build our own ability to scale, both for this permutation of semi-solid and for next generations. That's what improves our confidence that the semi-solid platform is the right long-term bet for Western-hemisphere IP for battery cell production. In terms of what we're doing every day, we have daily standup meetings and deep problem-solving sessions — it's taking up the attention of key people at FREYR on a daily, if not hourly basis. We're executing with urgency on governance, vendor coordination, and bringing the right subject-matter experts together.

Operator, Operator

There are no further questions in the queue. I will turn the call back over to Jeff Spittel, VP of Investor Relations. Jeff, go ahead.

Jeffrey Spittel, VP of Investor Relations

Hey, thank you, Jessica. Thank you all for your time today. Please follow up with us if you have additional questions; we will get to all of them, so reach out to me and we'll put some time on the calendar. We look forward to seeing a number of you in person on the road and virtually over the next several weeks. Thanks for your time and this will conclude the call.