Quantumscape Corp (QS) 2021 Q1 法說會逐字稿

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

Thank you, operator. Good afternoon, and thank you to everyone for joining QuantumScape's First Quarter 2021 Earnings Conference Call. To supplement today's discussion, please go to our IR website at ir.quantumscape.com to view our shareholder letter.

Before we begin, I want to call your attention to our safe harbor provision for forward-looking statements that is posted on our website and as part of our quarterly update. The safe harbor provision identifies risk factors that may cause actual results to differ materially from the content of our forward-looking statements for the reasons that we cite in our Form 10-K and other SEC filings, including uncertainties posed by the difficulty in predicting future outcomes.

Joining us today will be QuantumScape's Co-Founder, CEO and Chairman, Jagdeep Singh; and our CFO, Kevin Hettrich. Jagdeep will provide a strategic update on the business, and then Kevin will cover the financial results and our outlook in more detail.

With that, I'd like to turn the call over to Jagdeep Singh.

Thanks, John. Welcome to our earnings call for the first quarter of 2021. Earlier today, we published a letter to our shareholders, summarizing the major developments from the last quarter. I won't repeat all of the content of the letter here. But I would like to call your attention to a couple of key highlights.

At the end of March, we completed our VW milestone, which required that we delivered to VW for testing in their labs in Germany, cells of a specific form factor and performance level. The form factor consisted of near production-intent separator thickness and area, and the performance level required that the cells operate at predetermined rates of power and temperatures for a specified number of cycles. We were pleased that we successfully met this milestone as this represents a critical step towards industrialization and also unlock an additional $100 million investment from VW.

On the technical front, we are pleased to report that the team has made 4-layer cells in the larger 70x85 millimeter form factor that we laid out as a target on our last earnings call. As the data in our shareholder letter shows, early results from the testing of these cells looks promising, approaching 500 cycles to date with excellent capacity retention and will the cells continuing to cycle. These results from 4-layer commercially relevant area cells indicate we are on track to meet our 8- to 10-layer cell milestone by year-end, followed by prototype samples in the commercially relevant form factor containing dozens of layers by 2022. We also report today data from testing of our cells with 0 externally applied pressure. In other words, one atmosphere of total pressure in coin-sized cells. This is noteworthy because other solid-state lithium-metal efforts that we are aware of have generally required pressure to cycle. However, delivering very high pressures, as some solid-state cells require, adds cost and complexity to the system. As the data on our shareholder letter shows, the cells achieved over 1,000 cycles with good capacity intention, even with 0 applied pressure. We did this work in coin-sized cells, which is a platform we use for early research developments. And while there is more work to be done to replicate these results in the larger-area cells, achieving these results in this form factor is an important first step toward introducing this capability into larger cells.

We believe that being able to manufacture cells that require 0 applied pressure that enable us to address markets beyond automotive, such as consumer electronics, where applying pressure is impractical due to size constraints, and while not necessary for automotive applications, could simplify automotive module and pack design in the future.

On the manufacturing front, last month, we signed a new long-term lease on an approximately 197,000-square-foot facility near our headquarters in San Jose that will house our QS-0 pre-pilot line as well as other R&D activity. We plan to move into this new facility in the fourth quarter of this year.

Finally, we raised $478 million in gross proceeds and a follow-on offering in the quarter, of which approximately half will be used to fund the expansion of QS-0 to over 200,000 cells per year. Additional capital from the equity offering will be applied to fund the build-out of QS-1, our joint venture with VW, which will target commercial production in the 2024-2025 time frame.

We've now accomplished 2 of the 4 previously announced milestones for 2021. The VW milestone and securing a facility for QS-0 and have made strong progress towards the third, 4-layer multilayer cell and the commercially relevant form factor. Our remaining stated milestones for the year are to complete the development and testing of the 4-layer commercially relevant area cells and then to build 8- to 10-layer full-sized battery cells.

A few words of historical context. Fritz, Tim and I started the company over 10 years ago with the vision of enabling the next-generation of electric vehicles. We believe that if we could develop a solid-state battery, we could facilitate the transformation of the automotive industry, from internal combustion engines to electrified powertrains, enabling a substantial reduction in greenhouse gases. We didn't know when we started whether we'd be successful. We were fortunate enough to have a combination of investors and team members who are committed enough to this goal to weather the ups and downs of the development process. We ended up taking us 10 years with deep experimentation in every material we could think of to develop our solid-state separator and the associated scalable manufacturing processes. This single-minded focus has served us well in the past. And going forward, we intend to continue being similarly focused on executing to our development plans. We believe if we can do this, we will achieve our goal of driving the next-generation of value to our customers, positively impacting emissions and creating significant value for our investors.

Based on the groundbreaking results we have shown so far, I remain optimistic about our ability to execute on this vision and achieve our goals. Given this context, with the exception of satisfying tax obligations, I'm committing to not sell any of my QuantumScape holdings, at least until we have delivered a prototype in a commercially relevant form factor to full slogging. In closing, I'd like to thank all of our employees for the incredible groundbreaking work they've been doing and his commitment to our mission and vision has gotten us to where we are today.

With that, I hand it over to our CFO, Kevin Hettrich, to say a few words about our financial performance and open it up to Q&A. Kevin?

Thank you, Jagdeep. In the first quarter, our operating expenses were $45 million. Excluding stock-based compensation, operating expenses were $33 million. This level of spend was in line with our expectations entering the quarter.

For the full year, we expect cash operating expenses to be in the range of $130 million to $160 million. In terms of CapEx, on a full year basis, we expect to spend between $130 million and $160 million, with about half of that spend dedicated to our 200,000 plus QS-0 cell capacity as well as tooling and machinery associated with an additional engineering line at our new building. The aforementioned capacity increase of QS-0 enables us to provide more prototype cells to VW, other automotive OEMs and prospective customers in other industries. We intend that QS-0 will establish a mass manufacturing system blueprint. Learnings from the larger QS-0 capacity, we expect to help further derisk our QS-1 scale-up.

With respect to cash, we spent $35 million on operations and CapEx in the first quarter. We anticipate the aforementioned free cash flow burn to be in the range of $260 million to $320 million for 2021. This is approximately $30 million more than we communicated on our February earnings call. Predominantly due to CapEx associated with the expansion of QS-0 capacity. We ended the first quarter with approximately $1.5 billion in liquidity. We plan to end 2021 with well over $1.3 billion, a net increase of over $300 million compared to our liquidity position entering the year. We believe this capital fully funds QuantumScape through initial QS-1 production, and additionally, contributes to the subsequent QS-1 expansion. Of course, the pace with which we are able to spend will depend on several factors, including our ability to ramp head count and the maturity of our production processes, including the level of its automation.

Our GAAP net loss for the first quarter was $75 million. Of this amount, $31 million represents the noncash fair value adjustment of the assumed common stock warrants in accordance with U.S. GAAP previously referenced.

With respect to share count, I'll be providing numbers rounded to the nearest 0.1 million shares. We ended the first quarter with approximately 389.8 million shares of common stock outstanding, including approximately 12.0 million shares from our March follow-on equity offering and approximately 9.5 million shares issued upon the exercise of assumed common stock warrants during the first quarter. While the technical milestone associated with VW's investment was met in the first quarter 2021, the investment closed after quarter end following the expiration of the applicable regulatory waiting period. Consequently, the 15.2 million shares subsequently issued to VW are not included in the aforementioned 389.8 million shares of common stock outstanding at quarter end. Similarly, cash subsequently received from VW is not reflected on our Q1 balance sheet.

In summary, we're excited with everything we accomplished this quarter and look forward to the challenges ahead. We'd like to thank our investors for their support and belief in our mission. With that, I'll pass it over to John. John?

Thanks, Kevin. As we've done in the past, we'll now review a few of our most asked questions from investors during the quarter before moving to the traditional Q&A session with the sell-side analysts.

Jagdeep, can you explain how you've tested for dendrite and what gives you confidence that your separator can resist dendrites?

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

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

Sure. So our standard test conditions would test our 70- to 85-millimeter area cells, which is the commercial relevant form factor. At 30 degrees, which is near room temperature at 1 fee rate, which means 1-hour charge and 1-hour discharge, which actually is a relatively aggressive rate of charge and discharge corresponds to discharging your entire battery pack with hundreds of miles of range in an hour. And supercharging it to recharge the battery pack in 1 hour. In addition to the standard set of data, we report additional data to more fully characterize the performance of the cell, so we sometimes support data at C/3, which is 3-hour charge and discharge rates as well as higher and lower temperatures to reflect conditions that the cell might see in the real world.

After the ladder test, we used 45 degrees, as you mentioned, 45-degrees Celsius. And that's to reflect feedback from the automotive OEMs that we're working with, the fast charge is most likely to occur when you're just coming off of the highway and the battery pack is likely already self-heated.

The negative 10-degree test that we do is also very important to show how the cell performs in colder temperatures, where is also key requirement for the automotive application. Now that many solid-state systems actually can't run well at these cold temperatures, so that data is an important indication of real-world applicability. So the summary is that we try to test the cells in the standard configuration wherever possible. And where we add additional tests to provide a better sense for how the cells perform in the real world, that's incremental data beyond the base set that we provide.

Okay. Great. Thanks. Let's talk a little bit about the competition because I think investors this quarter noticed a difference in the approach between you and some of your competitors, where some of them are scaling up first and making large numbers of cells of large-scale manufacturing equipment before they've shown cyclized data that meets the automotive requirement of 800 cycle to more than 80% capacity. When their argument being that scaling up is actually the most difficult part of the solid-state approach, whereas QuantumScape appears to be taking the opposite there. So can you discuss these 2 different approaches?

Sure, John. Let me back up a step. So there are only a few basic materials that exist relative to making solid-state materials. And the 3 main ones that are popularly used are polymers, sulfide and oxide. All 3 approaches had issues, and the most fundamental one being an inability to prevent dendrites. Now a system that can't stop dendrites effectively will never be usable in a real car.

Unfortunately, solving dendrites has become to be a really hard problem, and many groups who are working in the space, find it easier to try and solve the scale-up and size of the cell problem and talk about manufacturing scale, rather than solve the fundamental issue of dendrite formation. Such approaches only end up working at elevated temperatures like 60, 70, 80 degrees or low rates of power, like C/10 or C/5, which makes it impractical for real automotive applications, no matter how big a cell we make or how much capacity that we are packing.

In our view, these approaches represent technological dead end. One of material in particular that's been used by a number of competitors that are talking about scaling up is a sulfide family materials. Unfortunately, besides the dendrite issue we just discussed, the sulfide have an additional cells issue, which is hydrogen sulfide formation. So hydrogen sulfide or H2S is an extremely toxic gas that forms upon contact of sulfides with ordinary air, which contains water in it. The water reacts with the sulfide to form H2S. And a quick Wikipedia search will tell you that H2S can kill at a few hundred parts per million. So it's a very serious issue unless it get solved on the sulfide-based approaches.

Now quality of that contrast chose to first make a system that could be shown to meet the basic requirements of cycle life and high rates of power, i.e., 1-hour charging, 1-hour discharge, without requiring temperatures elevated to 60-, 70- or 80-degree Celsius. Having shown this data in December, we've now turned our attention to scaling up.

So the last point I want to make regarding fundamental chemistry versus manufacturing scale. I know some people say building a prototype is easy and manufacturing was hard. But I would say it depends on the type of product you're talking about. In the case of a car, I'd agree that making a prototype might be easy. Since there are typically no material-level inventions required to make a car. But manufacturing can be hard because it requires coordinating builder materials that might have 10,000 parts of it and ensuring a smoothly running supply chain that can deliver each of those parts on time. It's not trivial, even 1 missed part can cause line to stop.

But if we're talking about bad news that we had, I would say the chemistry is the really, really hard part. And as evidence, I point to how rare it is to see fundamental new chemistries over the last few decades that have entered commercial deployment. And in particular, I'd point to 40 years of work that have gone into solid-state materials with very low commercial success to show for all that work. And by contrast, many companies in battery space have shown they can build a better -- bigger factory in 18 to 24 months because there are no new law of physics required to build value batteries. For this reason, we chose to focus first on confirming that we had a material of a solid-state separator that could cycle on your uncompromised test conditions without dendrite. And now that we've shown that, we've turned our focus to scaling up the layer count and production capacity of engineering/manufacturing lines. We believe this is the only path to making a commercially viable new chemistry. More so, the chemistry works and then focus on scaling up the production factory, not the other way around.

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

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

All right. Great. Thank you, Kevin. We're now ready to begin the Q&A portion of today's call. Operator, please open the lines for questions.

(Operator Instructions) Your first question is from the line of Adam Jonas.

So first, a question about cell delivered to Volkswagen and to other auto OEM customers. I'm reading into your comments that they would have external pressure. I'm just confirming that there may be benefits over time to having 0 external pressure. But the -- I just want to confirm that what is required and what is expected from the Volkswagen within the Volkswagen JV is that it would have external pressure. I'm curious how much that is and whether the amount of pressure matters in terms of form factor or cost?

Yes, it's Jagdeep. So the cells that we deliver to VW were under the standard pressure that we've been reporting our cells at. And so basically, if you look at all of the data we published, we report the pressure that the cells are under. Now in the automotive application, delivery pressure is -- modest amounts of pressure is not an issue because the cells go into modules and modules go into packs, and we can engineer systems that can deliver those modest amounts of pressure without significantly increasing the complexity of the design. It's when you get into incredibly high pressures, like 10 atmospheres or above that the system design becomes really complex and potentially expensive. The 0 pressure data that we talked about today is brand-new data. This is an additional new result that was not on the publicly stated road map that we have laid out. And the benefit there, again -- first of all, it's an industry first. So no one -- generally speaking, solid-state systems do require pressure to maintain interfacial resistance at good levels. And -- but the benefit of 0 pressure is that you can make the system applicable to applications where you just don't have the volume to 0 pressure.

So for example, in a consumer electronics application like a mobile phone, there just isn't enough room to have any kind of pressure delivery mechanism. So the big benefit of a 0 pressure design, but your question, I mean, 0 externally applied pressure. There's still a -- everything has 1 atmosphere of natural pressure on it. But the benefit of that approach is that it opens up applications like consumer electronics, which could be interesting applications for our technology. And it does simplify the design of the module impact if you do it for automotive, although it's not required. And that's the key point we're making in our scripts and our letter.

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

Yes. I can -- let me take on the specific question about government opportunities. What I'll just preface that by saying is, in general, there are a few key sources of capital for a company like ours, a lot, of course, is the capital that we've already got from private investors and public investors, so that's already on the balance sheet. There's obviously similar capital available through public markets in the future. The second source is, of course, partnerships with the key automotive OEMs. What we're doing is so strategic to the automotive sector that we're seeing a significant interest on the part of the automotive OEMs to help fund the investorization of this technology. So obviously, the VW JV is a great example of that, where they've -- obviously, we've announced already there funding half of the JV that we're doing for our initial deployment. Other OEMs find the technology to be equally significant. And so that's another source of capital is the automotive OEMs.

The third source of capital is, in fact, government incentives and both at the federal level and the regional level. This is not just true in the U.S., but many parts of the world, recognize how fundamental a transformation of a very import industry, we're in the middle of. And they recognize that having a domestic battery industry could end up being a critical part of maintaining their jobs base as well as their technological base. So obviously, Germany is one of the major manufacturers of cars, particularly concerned about this. But in general, in the EU, there's lot of countries like that, the U.S. under the current administration is -- since you're arriving at a similar conclusion. So with that as context, let me turn it over to Kevin. Maybe, Kevin, you want to say a few words about specifically government level opportunities.

Sure. Adam, that's a fantastic question. Really just 3 things to add to Jagdeep's comment. The first is that what you were noting is certainly the precedent for conventional lithium-ion factories. So that if you look at any of the major recent factory announcements, they do tend to be paired with either some level of country or a state or city level support for all the right reasons that Jagdeep laid out. The second point I'd make is that we haven't assumed any of this in any of our historical projections. So if QuantumScape does indeed receive any type of subsidy or government support, that would be upside to any of our plans or projections. And then the final point on their strategic nature, in addition to all the direct jobs being created at the factory, there's all of the strategic jobs created that are indirect as well. Both in the tool supply as well as in the rest of the supply chain as well.

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

I guess I was curious if we could just go back to the 4 layer 70x85 tests. I guess the pressure requirement, and how is that relative to your expectations? And I guess once you start adding the layers here and getting to 8 to 10, how do you think that requirement will look like for a design of 8 to 10 layers? I guess just trying to think about when -- if you think that 6.8 could trend down throughout the rest of this year.

Yes. So our experience has been. So we currently apply, as you know, a single-digit number of atmospheres of pressure. And when we apply pressure to a stack of cells, that pressure is distributed through the stack. So you don't increase the pressure as a function of number of layers. The pressure has now where to go, so it will literally just go right through the rest of the stack. So it's not the case that, for example, a 10-layer cell requires 10x of pressure. That's point number one. And point number two is the reason why we released the data on the 0 pressure results is to indicate that, in fact, continue making great progress in an area where there hasn't been a lot of progress historically, which is cycling lithium metal anodes without the need for any externally applied pressure. And the reason why we think that's interesting is because that does simplify the module and pack level design. So even though we believe single-digit atmosphere is a design that can be engineered into automotive applications. We think it's a simpler design. They're not required any pressure. So we will move in that direction now that we've shown the proof of concept with these initial 0 pressure cells. And then also that will open up additional applications that do not have an opportunity for pressure like consumer electronics.

That's helpful. And then maybe just as a follow-up, Volkswagen on their power day, you mentioned going to uniform sell route prismatic approach. Could you -- for, I guess, 80% of the needs, can you maybe just talk about your expectation around cell design? And whether or not you could go from passive prismatic to maybe accommodate VW or would the pouch design perhaps represent the additional 20% of demand from Volkswagen over time?

Yes. So I think the key point though is that when we say commercially relevant form factor, we mean a design that can, in fact, be engineered into a module and pack at the car level. And the key there is always to have enough layers and enough energy density in a given form factor. So if the form factor is too small, then what happens is the packaging and inactive materials start to dominate the cell and the energy density, i.e., watt-hours per meter drops. So as we've mentioned on previous calls, we believe this deck of size -- deck of cards sized form factor that we've been talking about with dozens of layers in it does, in fact, allow us to hit the 1,000 watt-hour per liter target that we have. And so with that, it ends up being commercially relevant to OEMs and actually Volkswagen.

You're right that there is a longer-term desire on the part of not only VW but many other OEMs to move to a form factor that's somewhat wider than the deck of card size form factor we've shown. And that's something that we will address in the future. But for now, our current form factor target for commercial development designs remains, roughly speaking, that deck of card style form factor because in our models that can, in fact, get us to the 1,000 hour (sic) [watt-hour] per liter energy density target. So there isn't a need to try to kind of go to larger, larger form factors, which then require additional development to commercialize.

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

First question, just a clarification. The 0 pressure cell that you described, that does not have any liquid in it, Jagdeep?

Rod, great question. I want to clarify now that you asked this. So when we talk about solid state, what we're talking about is two things. One is that there's a solid-state separator. So the separator is a dense material, unlike today's cell, which have a porous separator made out of typically organic material, like polypropylene. We've got a polyolefin material. Those materials don't conduct by themselves. Lithium ions can't move through those kinds of plastics. So instead of what they do is they have holes in them, and those holes are flooded with the liquid electrolyte. The liquid electrolyte towards the cathode, the separator as well as the carbon particles in the anode. So it's clearly everywhere in the cell, whereas in the solid-state design that's the one we're talking about, we eliminate the part of it are replaceable, it's pure, denser, and there's no hole in it. And so the lithium ion actually move through the atomic lattice of the separator itself.

And then second point is between that solid separator and the pure metallic lithium, there's no liquid. So that's just a direct interface of solid to solid. In our cathode, there is an organic material, which consists of a polymer and liquid. But that cathode is going to -- that's the capital light. It's limited to the capital. And because we have the ceramic separator, that liquid doesn't actually make its way to the anode of the lithium metal. If it did, you would actually see the cycle life fade much more quickly than what you're seeing with our cells. So with our cells, we've shown, as you know, 1,000 cycles -- of cycle life with well north of 80%, in many cases, 90% capacity retention so significantly above the stack. And that we don't believe will be possible if you use a liquid cell because liquids are known to react to metallic lithium. And this has been the whole problem with liquid-based cells and lithium metal is that chemical side reaction between liquids and lithium metal results in a loss of both lithium and the liquid as well as the buildup of reaction side products that raise the impedance or resistance of the cell. And as a result, the cell cycle life starts to fade within 300, 400 cycles that hit 80% and start dropping off. So the key to a solid-state cell is solid-state separator does not have any holes in it to allow liquid penetration; and b, a lithium metal anode that makes a direct interface with that separator without the need for any liquid in the middle.

Yes. Okay. That's helpful. If you made a comment in the letter, Jagdeep, about the development tasks ahead. Couple of them obviously related to manufacturing, like throughput, yield and uniformity. Can you talk about the path forward on that? What kind of metrics are you targeting for these? And how challenging are they?

Well, so yes, those are obviously key requirements for any high-volume scale of process. I mean we went through a similar process in my last company, which was making the optical photonic integrated semiconductor chip. And yield is one of those things that just continually increases, right? As you learn more about the process and how to get uniformity, how to have fewer defects, fewer contaminants in your lab and your manufacturing store. The yield starts to increase. Throughput is a function of the tools that you have and the processes that you have. So if you have things like batch processes in there with a lot of human intervention, those tend not to be scalable, which is why the design that we have to make our solid-state system is one that uses continuous flow processes. So there's 2 steps in the manufacturing process. Step one is to make what we call a green tape to cast the material. That's done on continuous 4 quarters that are not too different from what's done for today's cathode electrodes in battery factories. And the second step is a heat treatment step. And that step two is a continuous flow process, where the firm just run through continuous flow, heat treatment tool that ends up processing those with the right heat profile. So those are kind of things that we're doing and that we need to keep doing. At the end of the day, the measurement of that comes out, are we able to deliver the cells that we are planning on delivering to our customers. So like, if we can, for example, have a QS-0 produce 200,000 sellers a year like we're planning on, that would be an indicator that all those metrics are, in fact, tracking to our goals.

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

Well, I mean what we're hearing is exactly that, that people -- clearly silicon is here today and has been here, frankly, for around a while. So one thing -- a couple of points. One is that silicon is here today so there's always a lot to use it. But I think there's -- of the people that we've spoken to, there's general agreement, lithium metal is the end game. In fact, those are some of the words that we hear from OEMs directly. Because you can't have a theoretically higher energy density or specific energy anode than pure lithium metal in a sense that lithium metal doesn't have a hosted -- any host material. So all you have in a lithium anode is the same lithium cycling back and forth. Assuming, of course, it's 0 lithium cells, and there's no excess lithium in there to help the nucleation of that lithium anode. So with 0 (inaudible) only lithium anode as well as cycling back and forth, there's no silicon, no carbon, nothing else to where you got or take up space.

Now the second point of that silicon is -- the reason why silicon is a little bit of nebulous thing to get your arms around is because when people takes a look at anode today, what they're really talking about is some amount of silicon that actually put into a carbon anode. So it's a carbon anode with some level of silicon in it. It's never 100% pure silicon. And the reason for that is, as you I'm sure know, a pure silicon absorbs a lot of lithium and expands by a factor of 4, roughly speaking. And then contract again when that lithium goes out as a solid discharge. So they've been charged and discharged. Lithium is literally expanding and contracting like a sponge, soaking up lithium and -- I'm sorry, silicon is expanding, soaking, (inaudible) lithium and letting it go. And over repeated cycling that silicon pulverizes itself, resulting in a loss of capacity.

So the only way to prevent that, that people have come up with is to have a small amount of silicon in the carbon anode. And so there's a direct trade-off with silicon anode lithium, how much silicon you have, which corresponds to energy density and your cycle life, which is also validation of that sort of thing. So when people think silicon, it's important to ask, well, how much silicon are you talking about. Because 100% silicon solution, to our knowledge, have never been shown to have any kind of decent cycle life.

And there's one of the -- unfortunately, one of the things that sometimes not reported in a way that's easy to understand, companies -- some companies on the silicon side would sometimes support data where it will show energy density of silicon analog with a higher amount of silicon in it, and then they'll show a cycle life slide with a lower amount of silicon in it. And it leaves the reader uncertainty as to whether it's the same cell or not. It's important to kind of be able to ask those questions to really understand what's being said. So but the net of it is that, yes, the OEMs that we're talking to are all looking at silicon as an intermediate step towards the end game of a pure metallic lithium anode, if that could be done. And obviously, we haven't yet shipped them pure lithium cells to put in their cars. But if we do that, then we see -- we expect to see a very strong interest in that from multiple OEMs as opposed to continuing to use silicon anodes.

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

Maybe first to follow up on that last question. The shareholder letter talks about continued strong inbound interest from multiple prospective customers. Could you elaborate any more on that in terms of how the inbound interest the company is seeing currently maybe compares to how it was as would be the last time you spoke about 90 days ago? And what it may take in order to win an additional customer beyond VW.

Yes. I mean, Mark, thanks for the question. We obviously can't comment on any deals that aren't announced. But we have said that there has been a lot of interest from a lot of players. Since we announced our Battery Showcase Event in December, since we announced our Q1 earnings call with the multiyear results, we've seen a continued increase in interest, both terms of the level of interest and the amount of interest in terms of the number of players out there in our technology resolution.

And to be candid right now, we really expect to be supply-constrained in terms of both near-term delivery of test cells to these OEMs as well as the prototype samples that will come off of our QS-0 pre pilot line. We did, as you know, decided to expand with QS-0 pipeline more than doubles capacity. That was a key part of the reason to do follow-on operating last quarter. But even with that added capacity, we expect that will be an own allocation, which is a good problem to have in some sense, but it's still a problem in that we can't serve everybody's needs. The reality, Mark, is we're -- as a company that's still emerging, we won't have the management bandwidth to have too many customers in terms of our ability to support them. So we're going to have to pick a small number of key partners anyway. But in terms of the amount of interest we've seen, I would say it's very broad. As you would expect, I mean, if you have a technology that has the kind of features, we're talking about high energy density and the ability to charge more quickly and sort of the safety benefits in the solid-state separator and the cycle life that we're talking about, then why wouldn't it be attractive. So our key challenge here is delivering enough cells to all these players to try to give them what they need and wind up really prioritizing the ones that we think will be the best fit for what we're doing.

That's helpful. My second question was trying to better understand a comment in the shareholder letter. I talked about targeting commercial production in the 2024 to 2025 time frame. And I'm hoping to understand how that compares to the Analyst Day presentation showing about 0.25 of a gigawatt hour being shipped in 2024. And I think that was pretty early production. So maybe there's no change, but just trying to better understand the current phrasing compared to what has been previously articulated on the financial plan?

Yes. I think you pretty much articulated well. If you look at that analyst presentation, the model that we had there, showed relatively small revenue in '24, ramping up in '25, and that's what we're referring to when we say '24 to '25 time frame.

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

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

No. Absolutely. A great question, Ben. So a couple of points to give you context before I answer the question. In terms of the factory itself, much of the tools that go into the factory are actually going to be very similar to what goes into lithium ion conventional battery. So for example, the cathode line will be virtually the same. It's going to be cathode coaters and the same type of suppliers. The cathode active material will be very similar to what's already used in today's -- or the current generation of lithium-ion batteries. The anode line, as you know, doesn't exist because there's no silicon, no carbon, not even an extra layer of lithium on the anode acuity of 0 lithium anode that forms (inaudible). We keep the same cathode line as we eliminate the anode line. The only difference then is that when the conventional battery buys separators from separator suppliers, we make our own separators. However, even there, we make that separator using tools that are scalable and continues low dimensionality. So there's a 2-step process of making that separator. The first step is a casting process, very similar to what's used for cathode coatings. So that's already obviously very scalable tools. And the second step is a heat treatment step. But that too is a continuous flow heat treatment tool where things are running through this conveyor belt and being handled in continuous flow fashion. So they're both a scale processes.

The second part of the question is how is the battery or the battery pack process differ from that process. So luckily -- so when we started the company, we actually thought we might end up making both cells and packs. We since realized a couple of things. One is that making cells is hard. So we decided we wanted to focus on cells and not take on additional tasks beyond task beyond that like the pack. But secondly, we also found that the OEMs we were talking to very much wanted to control the pack themselves because the pack is an integral part of the vehicle design itself. It's integrated very tightly mechanically, thermally, electrically via software. So they bring the cell to package as a part of the car. The nice thing about making cells, however, cells that are very simple interface, a set of a 2 terminal device with not a lot of -- not a lot of other complexity beyond it. And so when we make cells, it's easy to head off to the OEM. The OEM is the one who makes pack. So really, our only responsibility is at the design phase to make sure that we communicate the external behavior of the cell. That means it's electrical interface, the thermal behavior, the interface of the vehicle in terms of BMS and so. But that's all we do, we actually deliver parts as a cell. So we just deliver cells to them, and they have -- they've engineered a pack that can accept those sells and build -- and build a full pack with them.

I guess just around that question. So someone's already VW and then your next OEM partner is already developing that pack, right, to match the cells and the next cell that you do looks bigger?

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

Got it. That's very helpful. Congrats on raising money. That was good. Could you talk maybe about -- you mentioned the VW and I think the milestones in the report, just a housekeeping, is there another milestone that triggers capital injection?

Well, yes. So the answer is that particular milestone was set back roughly a year ago when we entered into our Series F agreement with them. This is before obviously we're a public company, we're still a private company, and they were participating in the private round that we were doing at the time. And they had committed to invest $200 million. The first -- and this is, of course, COVID has already started it. And so the automotive OEMs have seen a significant drop-off in their revenues and cash flows, and they have requested the idea of having a 2 tranche investment approach. Tranche 1 would be in December with no closing conditions, just simply a time delay to allow them to manage COVID impact. And the second tranche, they wanted to have that tied to what they thought was a really significant milestone on the path to commercialization. And that milestone, as we report in our shareholder letter, had to do with a specific form factor and specific test conditions. And the form factor there was important because that specified near-production thicknesses and areas for the separator itself. So that gives them confidence that, in fact, we can make the separators in the right level of thickness to be commercially viable and achieve our energy density goals. And then on the test conditions, when they specified a specific test conditions relative to temperature and rate of power and number of cycles. And so we're very pleased when the cells met all of those conditions, and that just unlocked $200 million investment that was committed to a year ago. But now that's fully funded. So the only further cash coming in from VW is going to be related to putting in place this joint venture that we've talked about in the past, where we've committed to undisclosed sum -- to fund a 50% share of the first production plants that we're doing in this JV.

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

Jagdeep, clearly, good news on the larger format 4-layer cell test. I was just curious, though, like was this one test or like how many 4-layer cell tests were done? And I guess related, like, I know these are still preproduction cells. But how difficult or was the yield to sort of get the larger cells for the test there?

Yes. Thanks for the question, Joe. So yes, this is definitely good news because as you point out on last earnings call, we reported 4-layer cells, but because we didn't have the capacity, we made them in 30x30 millimeter form factors, which is somewhat smaller than this 70x85 millimeter commercially relevant form factor, kind of the playing card size. So the question was, okay, great, we can make them work in 30x30 form factor. What happens when we scale up to the full playing card size form factor, will they still work? Or will new problems creep in? And so what we reported on this, the data you see on the slide in the shareholder letter is, in fact, that when we made them in multi-layer cells. And this is more than 1 cell. We always make cells in batches and put them on test and batches. And obviously, the yield is not 100%. So when you make the cells, there's some cells that don't make it out of the manufacturing process. But of the ones that we deem to be good cells, we see very good performance in terms of cycle life and capacity retention.

So on the slide here, you're seeing that it's hard to read because you don't have a great backlog, great on the slide. But you see that these cells are approaching 500 cycles now with, I think, around 90% capacity retention, which means if they continue on, in this fashion, you expect over 1,000 cycles, 80% in the full 70x85 millimeter size 4-layer cells. So that's definitely new news and it's good news because it means that when you -- so what we showed last time was when you stack 4 layers up together, you don't adversely impact cycle life. And now what we're showing is when we increase the area of those 4 layers, we don't impact the cycle life or capacity retention. And those are the key questions that we had was, are there strange interaction effects. So in fact, you have larger area, does that create a bigger opportunity for problems to creep in and so on. And what this data shows is that it is, in fact, possible to make this 4-layer cells and have them perform really well relative to cycle life and capacity retention. And in all these stuffs are being done at aggressive rates of power. So 1 hour charge is 1 hour discharge, battery cycle like testing is not done at those rates, they're typically done at C/2, so 3-hour charge and discharge. This is more like -- again, what our charge means you're discharging a full multi-hundred-mile range car in an hour, right? So that's 100 of miles an hour in terms of what you're driving. And then you're also recharging it at a supercharger in and out as opposed to in your garage overnight.

And then these tests we've done actually a 25-degree Celsius, which is basically room temperature, which again is something that isn't typically seeing in solid-state system. So we're actually pretty -- we're actually very pleased with the performance that we're seeing there. Again, we're very careful always to emphasize that whenever we hit a milestone that it's a milestone. There's more work to be done, right? We've got to get to 8- to 10-layer cells. The question that Rod asked, we have to continue increasing [people and uniformity in it] and so on. So there's a lot of lifting to be done. But nonetheless, we're very pleased that we have 4-layer, 4, 5 cells working this early in the year because that gives us confidence that we can really reach out to hitting the 8- to 10-layer cell by year-end. And if you hit that goal, that would give us significant increased confidence that we can make a multilayer, full commercially relevant form factor prototype to deliver to our OEMs to test in 2022.

And at that point, the risk drops even more. And then while I'm talking about this, I would say that they are keys and milestones. In 2023, we will have a higher volume of sales in the 200,000 cells a year rolling off of our QS-0 pre-pilot line, that will be yet another important risk reduction step because that's the point at which those cells are going to real cars on test ranks. So those -- these 3 or 4 milestones, the 4-layer full-size cell, the 8- to 10-layer full-size cell by year-end, the multi-dozen layer for full size cell by sometime in '22. And then the hundreds of thousands of full-sized dozens of layers worth of cells in '23 that will go into real cars, every one of those handful of milestones represent sort of a step function drop of risk that we feel is going to really make the story that much more exciting. So we're careful to communicate both the results here. And also the upcoming milestones. But every time we hit one of these milestones as we have today, I think we feel increasingly confident that we remain on track towards our long-term goals. And that's really all we can do is focus on execution. We believe that if we can execute, the value proposition is so compelling and the customer interest is so strong that we're going to end up really making a significant impact on the industry.

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

I just want to thank everybody for making time to join us today. I think that as you heard on the call and our shareholder letter, we're pleased with the results that we've hit so far in terms of the 4-layer cell that I just spoke about, the 0 pressure cell, the customer interest that we continue to see. The momentum that we have with our manufacturing line. We've secured the QS-0 facility. That will start to be turned up later on this year. And again, we're going to keep focusing on execution, and we believe that it can keep executing, that we will achieve our goals of making an impact in this industry, helping to make a dent on emissions and, of course, creating a lot of value for our investors. And with that, I want to thank you all for joining, and we'll talk to you next quarter.

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