Earnings Call Transcript - TE Q1 2022

Operator, Operator

Welcome and thank you for standing by. Welcome to the FREYR Battery Q1 2022 Earnings Call. I will now turn the conference over to our speaker. Please go ahead.

Jeff Spittel, IR / Moderator

Good morning, good afternoon and good evening. Welcome to FREYR Battery’s first quarter 2022 earnings conference call. With me today on the call are Tom Einar Jensen, our Chief Executive Officer, Jan Arve Haugan, our Chief Operating Officer; and Oscar Brown, our Chief Financial Officer. 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 in 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 will turn the call over to Tom.

Tom Einar Jensen, Chief Executive Officer

Thank you, Jeff and again, good morning, good afternoon, good evening, everyone dialing in to this first quarterly result of 2022 and FREYR’s fourth quarterly results report since we went public on the New York Stock Exchange on July 8, 2021. Just repeating what Jeff has just been through and then moving to Slide 3, today’s agenda. What I am really proud of and find very compelling is that we are here showing you a picture of the dry room in the customer qualification plant. Our Chief Operating Officer will come back to the status of our operational progress later today. But today, we will go through some of the commercial developments which continue at an accelerating pace, the general market backdrop, our augmented value proposition to deliver into an unprecedented decade, the decade of the battery. We will talk about our operations and supply chain. Our new Chief Financial Officer will take you through the financial status of the company. We will focus on the strategic priorities moving forward while we open up for Q&A. We find ourselves in quite challenging environments in difficult times. We obviously reach out to all the people in Ukraine that have a very tough time these days and that is obviously impacting markets all around us. But from a battery producers’ point of view, what this is underlining is the need for an accelerated energy transition. The energy transition requirement is now clearer than ever and batteries, as I have been underlining many times, form a critically important part of that, not only to decarbonize transportation, but also to decarbonize energy systems globally. And to basically eliminate the need for Russian gas into the European markets, we will need an unprecedented development in renewable energy in Europe, which again will be capitalized to a large extent by more storage and lithium-ion battery supply. FREYR has very strong momentum across all market verticals. And we announced yesterday an additional off-take agreement with Powin and today, we are very pleased to announce an additional 25 gigawatt hours of offtake agreements that we have entered into over the recent weeks. This means that we have more than doubled our offtake agreements since our previous earnings call, equating to more than 100 gigawatt hours worth of offtake from our initial Gigafactories. This principally means that we are sold out on capacity from our Gigafactory 1 and 2 in Norway, up until and including 2030. FREYR is committed to deliver on speed, scale and sustainability. And this is ever more important than it ever has been. And our team is delivering on our commitments. We are finding ourselves as mentioned in highly volatile and challenging markets, but our financial position remains very strong. And the financing options that we are progressing are progressing according to plan. Capital is available for the right projects and we are finding ourselves in a very interesting sweet spot to accelerate the even more urgently required energy transition. Talking about commercial traction, commercial traction continues on all fronts for FREYR. If I move on this slide from the right to the left, let me now start by saying that we have now signed more than 100 gigawatt hours of initial offtake agreements, 50 of those with Honeywell, and a leading global ESS player now is in closing stages of negotiation. So, 50 gigawatt hours is now close to becoming definitive sales agreements. These are critically important aspects of unlocking project finance to our Gigafactory 1 and 2, which our CFO will come back to in a second. As announced yesterday and augmented today, we have an additional 50 gigawatt hours on top of that safely on track to definitive sales agreements and additional conditional offtake agreements bringing again the total signed agreements now to more than 100 gigawatt hours. We have an additional 100 gigawatt hours under negotiation. And we have those across commercial mobility and EV segments in addition to our very strong penetration in the ESS markets. But on top of that, we are starting to see very strong traction in particular in the EV markets. And we have now in discussion more than 200 gigawatt hours worth of annualized supply leading up to 2030. This could turn FREYR from a triple-digit gigawatt hour player to a terawatt player over time. This is supporting our ambition to diversify the technology offering as well as diversify our geographical footprint. To have an integrated supply chain approach with localized and decarbonized raw material supply is a critical component in this to ensure that we have a very cost competitive solution to offer to our customers. We alluded to yesterday we announced our agreement with Powin, one of the leading ESS players and longest standing ESS players in the U.S., a 28.5 gigawatt hour offtake agreement is a milestone for FREYR, adding to our already announced agreement with Honeywell and the leading ESS player. But on top of this, we have also signed an additional 25 gigawatt hours from two of the leading ESS players in the U.S. and Europe. We will as we progress towards definitive sales agreements for not yet disclosed names, announce who these players are, but I can assure our investors that these are absolutely leading players in the ESS space, fundamentally supporting the fact that we have a leading technology solution to offer to our customers. The 24M technology with thick and larger electrodes is generating a lot of traction in particular in the ESS space. But as you also are aware with Volkswagen coming into the 24M family towards the end of last year and starting to develop together with 24M EV solutions based on the semisolid technology, the 24M technology suite is applicable across the space. ESS players in general—and this is, in particular for us, exciting—are now to a large extent being marginalized by the EV demand. And recent price increases from Tier 1 producers in Asia are fundamentally supporting our accelerated development in the ESS space supported to a large extent by our ambition to have localized and decarbonized value chains to develop security of supply of critical energy infrastructure. Larger and thicker electrodes, when produced at gigawatt-hour scale locally with a decarbonized supply chain, are gaining very strong market share, driven by the security of supply considerations, but ultimately it’s a function of cost and decarbonization advantages. And we believe that when we produce these solutions at scale that we will have a fundamental cost advantage relative to conventional production. While there are multiple initiatives for cell production globally, in particular in the European market crowded with startups, we believe many of these will struggle to deliver technology, commercial wins and ramp up capability. When we move into the next decade, we believe a select few major players will remain and FREYR is on track to become a global champion in the clean battery solution space. As we presented in the pipeline presentation when we went public on the New York Stock Exchange, FREYR is a technology agnostic or technology flexible organization. And we are increasingly recognized by a broader and broader suite of partners across the value chain as an industrialization partner of choice. This has caused us to be mentioned both for battery cell technology providers as well as for up- and downstream players seeing FREYR from the vantage point of a battery cell producer. Localized and decarbonized supply chains, coupled with world leading project execution and operational excellence skills, which FREYR has been very focused on developing over the last 18 months, are attracting significant partnership potential for us upstream, downstream and horizontally. We are now taking significant steps to expand our total addressable market potential by also diversifying technology to conventional technology solutions as well as into solid state solutions. Product differentiation and diversification is going to be key to become a leading provider of clean battery solutions over time. All of this is happening while we are progressing and accelerating our plan to develop the 24M technology suites. We are seeing increasing and accelerating interest in the 24M technology, as mentioned and articulated with our traction on the ESS side, but also in commercial viability and EV solutions. So, all market verticals are seeing the dramatic cost potential in the 24M technology and we are, as previously mentioned, going to be the first one to take this technology to gigawatt-hour scale in the most favored locations globally. What you should expect moving forward from FREYR is a lot of momentum on numerous fronts, including diversification up and downstream as well as technology diversification to essentially increase our total addressable market. With this, I will turn over to Jan Arve who has in an excellent way been leading our efforts in delivering on our commitments and basically committing to deliver moving forward. So with that, Jan Arve, I will turn it over to you.

Jan Arve Haugan, Chief Operating Officer

Thanks, Tom and hello to everyone listening to us today on our call. I will start with an update on our operations. The key message that I have to share with you today is that our teams are making remarkable progress on both the customer qualification plant construction and the preconstruction activity on the combined Gigafactory 1 and 2 in Mo i Rana, Norway. As a lot of other industries, we too experienced disadvantages due to the COVID-19 situation and of course supply chain disruptions. However, I am pleased to report that the construction of the customer qualification plant, or the CQP as we abbreviate it, is progressing very close to schedule. As previously reported, we expect to complete the site acceptance test for the first sample in the facility in Mo i Rana near year-end 2022. Hopefully, many of you have seen the materials we have posted on social media detailing the work that’s been done by our skilled project execution team. Thanks to their effort and the outstanding support they are receiving from our technical staff in Oslo, we are advancing steadily towards factory acceptance testing during the summer and into the fall. Our Gigafactory 1 and 2 team is also making excellent progress in advance of the start of the construction. Groundwork preparations on the site and detailed engineering are largely complete. Indicative roles from the different suppliers of production line equipment are now being analyzed and the structure of frame agreement contracts are being formalized. We intend to present the project plan for final investment decision to the FREYR board during next month. In the interim, the Board has approved additional capital spending to facilitate the long lead time orders on building and infrastructure materials. This is mainly to support and optimize the installation of the production line equipment in the factories. Recruitment for the workforce is progressing well and we are currently updating the standard operating procedure for all key operations. I am also very pleased with the efforts and achievements we have made in recent months to secure key raw materials for the combined Gigafactory 1 and 2. Amidst an increasingly challenging environment for upstream raw materials, our team has completed qualification programs on technical capability, capacity and quality control for most of the raw materials that we need for the factories. We are now working to finalize the volumes, delivery and pricing terms with our suppliers. At FREYR, we believe that developing the localized and decarbonized supply chain at giga-scale is an essential competitive differentiator. And we are already implementing our strategy by moving closer to final investment decision on our collaboration with Elise to construct an LFP cathode plant in the Nordic region. By localizing upstream elements of the value chain, we can reduce our emission profile over the lifecycle of our battery production and we can simplify the process of delivering decarbonized cells to our customers in Europe and the U.S. Our teams are focusing on arriving rapidly at final investment decision on the proposed LFP cathode plan in conjunction with the combined Gigafactory 1 and 2. This is not a small undertaking and there have been and will continue to be challenges along the way. We are in the process of doing something that has never been done before in the Nordic region. A startup of a company, FREYR is developing now, will be complex multibillion-dollar manufacturing facilities in a somewhat remote yet industrialized region of Norway, but with unrelenting commitments to decarbonization, operational excellence and strong financial returns on the capital that we are deploying. My reassurance to you today on this call is that this task is in reliable and experienced hands. Our projects, supply chain and technical people are the best they can be and they are collectively focused on our goal to deliver clean next generation batteries to our customers. On behalf of the entire operations team in FREYR, thank you for your confidence in us. Our mantra is to commit to deliver and deliver on our commitments. And with that, I turn the call over to Oscar.

Oscar Brown, Chief Financial Officer

Thanks, Jan Arve and hello, everyone listening today. Since this is the first time I’ve had the privilege of speaking to you at FREYR as the CFO, I thought I’d start by sharing some of my observations as a new joiner to the company. I am very excited to be here at FREYR because of the people, the opportunity and our unique competitive position in the sector with strong secular, not just cyclical, tailwinds. After just five weeks with the company, I am incredibly impressed with the quality of the people we have in our organization. FREYR has attracted seasoned dynamic leaders and vibrant creative teams around them, driving our execution, our strategy and our business development. I personally believe FREYR is the best positioned new battery industry player in the market. Less than a year ago, the company brought together the best of Norway and the United States. From Norway, incredible people with both a strong entrepreneurial spirit and deep execution and operational experience and excellence from major projects around the world. The country has a very supportive government, vast natural resources, including abundant cost-competitive renewable energy, and a global credibility that’s unmatchable around sustainability in the energy transition. From the U.S., the company enjoys a New York Stock Exchange listing, a substantial U.S. investor base, access to the U.S. capital markets, U.S. technology through MIT spin-off 24M, and its investment by and U.S. joint venture with affiliates of Koch Strategic Platforms. When you couple our brilliant people with our growth trajectory and the growth trajectory of the battery market overall and FREYR’s opportunity to develop sustainable competitive advantages from our decarbonization commitment and our technological differentiation, you have a powerful story. FREYR is part of the solution for energy inflation, energy security, and climate change. As excited as I am to be here, I also recognize the importance of capital formation to enable us to deliver on our strategic objectives. We are moving swiftly toward initial giga-scale development and we are being presented with several promising business development opportunities, all of which require additional capital over time. Turning to Slide 11, I will note that we are already in discussions with several key stakeholders to explore options to finance our growth as efficiently as possible. The potential sources of capital for FREYR can be grouped into three buckets. The first is support from government entities in Norway, the EU and the United States. FREYR’s mission to decarbonize battery production at giga-scale is resonating within all of these spheres and in the wake of the deeply troubling events in Ukraine it is becoming increasingly clear that developing localized supply chains of batteries is a matter of national security. The forms of potential financial support that could originate from government organizations include grants, direct lending and guarantees, all of which could enable us to accelerate our growth ambitions. The second major source of potential funding is of course project financing. As we convert our initial conditional offtake agreements to bankable definitive sales agreements, FREYR will accelerate the project financing process with our banking partners and government agencies. Although project financing is a time intensive and lengthy process, the quantum and low cost of capital that should be available to us as construction begins to ramp up will be exceptionally helpful. And this market remains quite strong today. The final potential funding bucket is from private and public capital raising activity. We are quite aware that the capital markets have been volatile and challenging thus far in 2022, but we believe that FREYR’s unique story and the opportunity in the battery market will continue to attract interest from global capital providers and other stakeholders. Our team is evaluating several potential financing structures and we look forward to sharing additional details with you when appropriate. Turning to Slide 12 now, I will walk you through a brief financial overview. The key point is our balance sheet remains incredibly strong. We concluded the first quarter of 2022 with $525 million of cash and equivalents and no debt, which provides us with great financial flexibility. As we look ahead to the second quarter of 2022, our total net cash uses including operations and capital expenditures should be expected to increase from what we saw in the first quarter. This is due to both organizational development and preparatory work on the Gigafactory in addition to high activity on the construction of the customer qualification plant and the testing center nearby. Our priorities for the year 2022 are to deploy growth capital responsibly, evaluate and select the best strategic investment options for FREYR and to progress our capital formation efforts. Our finance and leadership teams are working around the clock and in many time zones to advance these objectives. We are excited and we look forward to exploring opportunities to partner together with our investors, our industrial partners and other stakeholders as FREYR grows. And with that, I will turn the call back over to Tom for some closing remarks.

Tom Einar Jensen, Chief Executive Officer

Thank you, Oscar, and thank you Jan Arve. It’s of course easier to be the CEO of FREYR when I have such capable people helping and supporting the development of the company. So to summarize, FREYR’s strategy is built around three core tenets. These tenets are speed, scale and sustainability. We are committed to deliver and we are delivering on our commitments. Our near-term priorities are to fund the expansion of our growth trajectory. The capital formation plan is accelerating on multiple paths. Our intention is to prioritize speed and to optimize the cost of capital. Capital is available and it’s deeply supported by Norwegian, EU and U.S. governmental support across the capital structure. We are continuing to expand and establish our operations and supply chain. We are starting to look like a battery company. We are releasing additional CapEx for the preconstruction of Gigafactory 1 and 2. And we are reaching final investment decision on Gigafactory 1 and 2 in parallel with the proposed LFP cathode plans. All of which is going to happen later this year as previously announced. On the commercial side, we have very strong momentum which is continuing to grow on a daily basis. We are focusing on converting our initial conditional offtake agreements to definitive sales agreements and we expect them to exceed 100 gigawatt hours by 2030 and to have them converted later this year. We will secure additional conditional offtake agreements in the ESS and now also in the mobility space with an additional 100 gigawatt hours by 2030, supporting an accelerated development of additional capacity beyond Gigafactory 1 and 2. Finally, we are now seeing very strong traction based on an industrialization partner-of-choice approach vertically integrated up and downstream in a partnership-based way, but also with diversification on technology that we are seeing very strong traction across all market segments, including mobility and EV commitments. We are in dialogue and commercial negotiations where we exceed 200 gigawatt hours of yearly offtake potential by 2030 and our ambition is to secure at least 100 gigawatt hours per year of that well before 2030 on an annualized basis, allowing us to unlock further capacity expansion in the geographical regions that we are currently located in and potential others. So with that, I am going to turn it over to Q&A. I thank everyone for your attention. Thank you for your trust and patience. With FREYR, we will continue to look over the horizon, commit to deliver and deliver on our commitments. Back to you, Jeff.

Jeff Spittel, IR / Moderator

Thanks, operator. I think we can open up the line for questions now.

Operator, Operator

Thank you. Your first question comes from the line of Jose Asumendi of JPMorgan. Please go ahead.

Jose Asumendi, Analyst, JPMorgan

Hi, Tom. Jose of JPMorgan. A few questions, please. The first one I’d love to hear: when we think about your ESS contracts, can you maybe lay out a little bit one of the unique selling points or the reasons why you are winning these contracts? What makes FREYR different to the competitors out there? And then second and third, maybe just put the questions together as we try to map a little bit revenues and CapEx on a five-year perspective and thinking about Slide 5, how do we put together where the revenue projection four, five years out, when do you start getting the revenues into the business? And second, can you maybe give us a bit of a — notifies your CapEx projection but at 12 to 16 months CapEx projection, so we can model the company a bit better? Thank you.

Tom Einar Jensen, Chief Executive Officer

Thank you, Jose. So, on the first question, why we are progressing and winning contracts? Ultimately, I think that question should be posed to the ones we are winning them with. But I think the way in which we are positioning this clean battery solution, with localized production and over time decarbonized localized supply chains is obviously something that is resonating and ultimately a critical component of ensuring decarbonization of the energy systems. Four-hour storage solutions, two-hour storage solutions, maybe even eight-hour storage solutions are today’s solutions that can be delivered with lithium-ion battery solutions and the 24M technology, where we can produce larger and thicker electrodes, basically reducing the need for additional modules, packs and racks around them. Because we are building larger energy-carrying solutions, that allows us to drive down system level cost on the ultimate ESS solution as well. So, this means that it’s a cost-competitive, localized solution, which is really driving the interest. In addition, as also mentioned, there is to a certain extent, the EV market is in a way vacuum-cleaning the current supply chains of batteries from predominantly the Asian providers, and therefore they are being, in a way, pushed out a little bit and some customers want to try to secure additional supply sources. So, those are some of the key points around why we are winning these contracts. We do believe that we will continue to generate a lot of traction in the ESS space. We also do believe that the ESS space is much larger than most people have anticipated so far, for the exact purpose of decarbonizing energy systems. The sun shines when it shines and the wind blows when it blows, but we need to store that energy to basically have electricity at night and when the wind isn’t blowing. So, roughly 80% of the world’s electricity generation today is non-renewable and it needs to move closer to 20% non-renewable in less than 20 years and that is impossible without large amounts of storage. And this is now gradually starting to come to realization with more and more stakeholders around the world who require an accelerated deployment of ESS solutions. So, that’s point number one. On point number two, during our investor presentation when we went public last year, we said that we were going to target 43 gigawatt hours of installed capacity by 2025, 83 gigawatt hours of installed capacity by 2028, and more than 100 gigawatt hours of capacity in the 2030 horizon. We have no reason to change that assumption. Today, we are looking into to what extent we can potentially accelerate it. We are, as also mentioned by our Chief Operating Officer, exposed to inflationary pressure. We are putting together an updated project finance package with our project finance banks and advisors and looking into it. What I can generally say is that, of course, currently, we are seeing price inflation also impacting the battery cells. Some of our Asian competitors have been increasing prices on LFP based cells, twice increases of around 20% each. We still think that over time, those prices will start to gradually come back again as more and more raw material supply comes on stream. Our general sales agreements will have pass-through mechanisms in them to cater for those price hikes on certain raw materials. So, that price increase really is something that is shared to a large extent with our customers. On the CapEx front, we are also of course experiencing inflationary pressure as everyone is, but the relative CapEx advantage of the 24M technology remains the same. We have previously argued that we believe in a 50% lower CapEx spend for our technology if you compare it to conventional technologies, as long as we build at large scale. That is why also having this commercial traction and having an ability to have visibility on larger installed capacity will allow us to negotiate even better terms for the CapEx figures. So, that’s as far as I can go at this point. We will, of course, come back to the market when we are presenting the final investment decision on the first facility and that would obviously be done in a value-accretive manner generating robust returns for our investors.

Jose Asumendi, Analyst, JPMorgan

Thank you.

Operator, Operator

Thank you. Your next question will come from the line of Maheep Mandloi of Credit Suisse. Please go ahead.

Maheep Mandloi, Analyst, Credit Suisse

Hey, hi, everyone. Thanks for taking my questions. Just moving quickly, on the technology side, I heard a lot of emphasis on LFP on this call, could you just clarify on that and like on your mix of LFP and nickel manganese batteries like how should we think about that going forward? And in terms of your contracts, also with ESS and potentially that new auto OEM, what those technologies could be for those as well? Thanks.

Tom Einar Jensen, Chief Executive Officer

Good morning, Maheep. So Gigafactory 1 and 2 will predominantly, if not entirely, be an LFP-based solution. That is obviously supported by the off-take agreements, where all the ESS players are predominantly focusing on LFP solutions due to the lower cost of that technology and also the inherent characteristics of LFP with lower energy density than NMC, but with a very long cycle life. Typically you want these ESS solutions to last 20 years plus and therefore having lower energy density and longer cycle life really suits the 24M technology very well. I would like to mention that our production platform is chemistry agnostic, which means that if we were to get traction, which we are already seeing on NMC and higher nickel content batteries, we could reconfigure one of our production lines to produce a different chemistry. But right now, we have more demand than what we can produce in Gigafactory 1 and 2. So, we will now be accelerating the efforts that we already have ongoing for Gigafactory 3 and 4, the development plans in Finland as well as our joint venture development in the U.S. with Koch Strategic Platforms, which by the way is also progressing very well. There is very strong interest across the United States for establishing additional Gigafactories through the partnership with FREYR and Koch. We had an initial 130 parties who were interested in attracting us as a producer. We are now going through a funneling process around that. But the long story short: LFP is behind most of, if not all of, the offtake agreements that we have announced so far.

Maheep Mandloi, Analyst, Credit Suisse

Got it. That’s really helpful color. And just in terms of the value for the new 50 gigawatt hours supply agreement, does that imply the dollar amount you could talk about or should we expect something similar to the ones we saw with Honeywell in the previous years of this company?

Tom Einar Jensen, Chief Executive Officer

So Maheep, right now price pressure on batteries is reasonably high and many of the Asian providers have increased their prices driven in large part by the increase in lithium prices. Our commercial agreements with these players will have pass-through mechanisms in them. So depending on where you are and what the underlying prices are for the raw materials, that will impact the price on an ongoing basis of the products that we produce. Generally speaking, we are committing to reduced prices of these products over time as we are continuously increasing and improving the energy density and the general technical characteristics of the batteries we produce. We are also constantly focusing on increasing the overall equipment efficiency, which is a function of yield and uptime in the machinery. That conversion-cost part of the picture is an area where FREYR’s operators and FREYR’s experienced personnel led by Jan Arve will be world leading in terms of reaching high yield and uptime in our machinery. We come from industries, many of us from the aluminum industry, where very high OEE is always targeted and the organizational structure and how we are implementing this will support getting very high uptime and we believe higher uptime than what is common in the conventional lithium-ion battery space today. The 24M technology being a much simplified production process should also allow us over time to get better and better at producing this. So over time, you should expect the prices to come back to longer-term trends of reduction, albeit at a slower reduction pace than what we have seen in the last 10 years. So this is a long way of saying that you would have to think about long-term trends in pricing. And we are implementing a technology that has a significant cost advantage relative to a marginal producer. As these markets get larger and larger, you would start to see more normal behavior on the pricing side for more standardized products across the different chemistries.

Maheep Mandloi, Analyst, Credit Suisse

Really appreciate the answer and congratulations on the strong pipeline. Thank you.

Operator, Operator

Your next question comes from the line of an analyst of Clarkson Securities. Please go ahead.

Unidentified Analyst, Analyst, Clarkson Securities

Good afternoon, and first of all, congratulations on wrapping up the quarter and the latest conditional offtake agreements. It was nice to see that you also started touching upon supplies from future Gigafactories. I know you have touched upon this on the last question, but could you provide any color on your progress there and what we could expect in the near future and any timeline details that would be great? And my second question is regarding your cash flow guidance from Slide 12: you mentioned that there will be some increase in the coming quarter related to ramp-up and construction activity. Is there any possibility to get a range there and if not, could you at least provide a directional number for the coming quarters as well? Thank you.

Tom Einar Jensen, Chief Executive Officer

Thanks for that question. Let me take the first one and then I will have Oscar take the second. As previously mentioned, our targets are 43 gigawatt-hours installed by 2025, 83 gigawatt-hours by 2028 and more than 100 gigawatt-hours by 2030, which we previously communicated. We are looking into whether we have an opportunity to accelerate some of that and once we have done the updated financial modeling we will update the market. When it comes to Gigafactory 1 and 2, that’s an 18 gigawatt-hour LFP capacity—eight production lines in what we labeled the central production area. As our Chief Operating Officer indicated, we are getting very close to having the technical basis to make the final investment decision. We will be recommending that to the Board of Directors later this summer. These eight production lines and the overall set-up form an idealized blueprint for additional Gigafactories to be developed. We have also come quite far in the detailed investigation of Gigafactory 3 and 4, which we are targeting to locate right next to the customer qualification plant. Constantly over time, we will be improving the production process and implementing new generations of the 24M technology, which will increase the speed of production—going from 20 meters to 30 meters to 40 meters per minute—and that pushes more material through the system and increases capacity per line. If we move from LFP to NMC in the future, the higher energy density of NMC means more watt-hours per kilogram and therefore more kilowatt-hours per production line. So the roadmap is a moving target and depends on commercial traction, bankable agreements to underpin project finance, and other inputs. On that note, I will hand it over to Oscar to talk about the cash flow question.

Unidentified Analyst, Analyst, Clarkson Securities

That’s great, and can I just follow up: is the expansion prior to any factories in the U.S. and/or Finland the case, or have I misunderstood?

Oscar Brown, Chief Financial Officer

Yes. So I will just point you to the longer out quarters, which are similarly dependent on timing of decisions that Tom just mentioned. For the immediate quarter: in the first quarter we spent from the balance sheet $41 million net. For this coming quarter, as I mentioned earlier, total net cash use will be a bit higher. Directionally, think of the change in cash being in the low tens of millions higher than last quarter; so if last quarter was about $41 million net outflow, think of the next quarter moving toward the mid-$40 millions to around $50 million net outflow. That’s directional because working capital timing and small grants can move the number materially. Also note that a lot of items that were OpEx in the past will become CapEx as we get closer to FID and complete engineering, so the breakdown will change over time. I hope that directional range is helpful.

Tom Einar Jensen, Chief Executive Officer

On the question of potential factories in the U.S. and Finland, we may move faster in Finland or in the United States. We are contemplating making additional investment decisions in all three locations—Norway, Finland and the U.S.—quite rapidly after making the FID of Gigafactory 1 and 2. But we need to get permits, secure raw material supplies, convert offtake agreements to bankable agreements, secure project financing, and decide on whether we will produce cathode material ourselves or source it from qualified suppliers in the interim. It is a fairly complicated puzzle, but we have a very capable team with experience building multiple projects in parallel and securing supply chains. We will come back to the market with updates as we have more definition around timing.

Unidentified Analyst, Analyst, Clarkson Securities

Alright. Thank you and thanks for the clarification.

Operator, Operator

Our next question comes from the line of Evan Silverberg of Morgan Stanley. Please go ahead.

Evan Silverberg, Analyst, Morgan Stanley

Good morning guys, Evan Silverberg on for Adam Jonas. As you guys are having your early discussions with government entities, what exactly do they need to see from FREYR prior to providing funding? Thanks.

Tom Einar Jensen, Chief Executive Officer

Good morning, Evan. Let me talk about Norway first and then Oscar can share a bit about the U.S. as a second example. The Norwegian government will launch a national battery strategy in June. It’s quite rare that they establish a strategy for a particular industry, but they are increasingly recognizing that the battery value chain is a very suitable energy transition industry for Norway to be a leading part of. We have been quite integral to that process and have had multiple iterations with them providing input on what such a strategy should include and what commercial stakeholders like us would require. We have submitted that there needs to be a level playing field, meaning that grants similar to what other battery initiatives in Europe are receiving under EU competition law need to be available in Norway. We have asked that guarantees leveraging the Norwegian government’s balance sheet be made available to ensure that we can get a high fraction of project finance supported through government-backed guarantees, and that bridge mechanisms be available until project finance solutions are in place. All of this is resonating and we expect to have much more visibility when the national battery strategy is launched in the coming weeks. This is obviously key to provide risk mitigation for building gigawatt-hour scale facilities of a new industry. Oscar, I’ll turn it over to you to comment on the U.S. Department of Energy and U.S. processes.

Oscar Brown, Chief Financial Officer

U.S. Department of Energy (DoE):

Evan Silverberg, Analyst, Morgan Stanley

Thanks. And just one follow-up: FREYR has a goal of creating a local supply chain. Specifically for battery grade lithium carbonate and hydroxide, how and where are you thinking of potential sourcing? Thanks.

Jan Arve Haugan, Chief Operating Officer

As we have indicated, we are looking at this together with our proposed partner Elise. We are considering different locations, predominantly in the Nordic region as the first step. This is something we are aiming to progress in parallel with the final investment decision for Gigafactory 1 and 2. So, primarily the Nordic region is the first priority for localizing upstream supply of lithium derivatives.

Tom Einar Jensen, Chief Executive Officer

In terms of raw material supply for lithium hydroxide and lithium carbonate, we are already in discussions with various suppliers and potential partners. Whether that becomes a joint venture or licensing arrangement is something we will decide on as we finalize plans. Securing lithium hydroxide and carbonate supply is progressing well. While we are monitoring volatility in the market, our plan is aligned so that the initial commercial production ramp is supported by supply discussions that are underway.

Evan Silverberg, Analyst, Morgan Stanley

Great. Thank you very much guys.

Operator, Operator

There are no further questions at this time. I will turn the call back to Mr. Jeff Spittel.

Jeff Spittel, IR / Moderator

Great. Thank you, operator. Thank you everybody for your interest this quarter. We will talk to you soon on the road and look forward to catching up in person or virtually. Thanks again. That will conclude the call.