Enovix Corporation (ENVX) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Enovix Corporation Third Quarter 2022 Earnings Conference Call. [Operator Instructions] As a reminder, today's program will be recorded. And now I'd like to introduce your host for today's program, Charles Anderson, Senior Vice President of Investor Relations. Please go ahead, sir.

Thank you. Hello, everyone, and welcome to Enovix Corporation's Third Quarter 2022 Financial Results Conference Call. With us today are President, Chief Executive Officer and Co-Founder, Harrold Rust, and Chief Financial Officer, Steffen Pietzke. We will also be joined by our Chief Commercial Officer, Cam Dales, and our Chief Technology Officer and Co-Founder, Ashok Lahiri, for the Q&A portion of our call. Harrold and Steffen will review the operating and financial highlights, and then we'll take questions. After the Q&A session, we'll conclude our call. Before we continue, let me kindly remind you that we released our third quarter 2022 shareholder letter after the market closed today. It's available on our website at ir.enovix.com. A replay of this conference call will be available later today on the Investor Relations page of our website. Please note that the shareholder letter, press release and this conference call all contain forward-looking statements that are subject to risks and uncertainties. These forward-looking statements are based on our current expectations and may differ materially from actual future events or results due to a variety of factors. For a discussion of factors that could affect our future financial results and business, please refer to the disclosure in today's shareholder letter and our filings with the Securities and Exchange Commission. All our statements are made as of today, November 1, 2022, based on information currently available to us. We can give no assurance that these statements will prove to be correct, and we do not intend and undertake no duty to update these statements except as required by law. During this call, we will also discuss non-GAAP financial measures, which are not prepared in accordance with generally accepted accounting principles. You can find a reconciliation of the GAAP financial measures to non-GAAP financial measures in our shareholder letter which is posted on the Investor Relations page of our website. I will now turn the call over to Harrold to begin. Harrold?

Thank you, Charlie, and thank you, everyone, for being on the call today. Enovix made strong progress in the third quarter that advance our goals to continue commercializing what we believe is the best product in the lithium-ion battery market that will allow our customers to deliver transformational features and products to the world. This is evidenced by the strength of our large revenue funnel and increasing engagement with leaders in portable electronic products and EVs. We have active engagements with 6 mega cap technology companies, 2 of which we have design wins with. And today, we are announcing a nonbinding MOU with one of these leaders. Under this agreement, Enovix and this customer will work together to leverage our technology across their broad product portfolio and further collaborate on our technology and manufacturing scaleup. We believe we are well positioned in the portable electronics market overall with more than 75 accounts clamoring for our products due to our technology leadership and energy density and safety. We continue to grow our global reach throughout Asia and have engagements with leading smartphone OEMs in China and major consumer brands in Japan and Korea, including Samsung. We are also seeing strong interest from leading automakers, given our fast charge advantages. And in the third quarter, we shipped production cells for initial testing to a Tier 1 EV battery supplier and a top 10 global auto OEM. Our task remains to scale the capacity for our revolutionary product with our Gen2 Autoline, the engine of growth for the company. Together with our key vendors, we made excellent progress on Gen2 during the quarter, including placing initial purchase orders for our laser patterning, assembly and packaging lines for long lead materials, design and proof-of-concept projects to demonstrate the design improvements built into Gen2. These 47 projects are presently being completed with our key vendors and have thus far validated the design concepts and improved performance of Gen2. We have also placed a follow-on purchase order for the remainder of system fabrication with our packaging equipment vendor and expect to do the same with OEMs and battery assembly vendors in the next several weeks. We believe that we remain on track to land our first Gen2 line in the second half of 2023. In total over the last 9 months, we've incorporated over 120 learnings from Gen1 into the detailed designs for Gen2, resulting in a line that can assemble and package many more batteries in the same footprint with significantly less capital for batteries. I'd like to highlight a few areas that illustrate why and how Gen2 is such an improvement. First, we have a laser pattern electrode form factor that allows us to deliver breakthroughs such as a 100% active silicon anode and safety innovations like BreakFlow that uniquely address thermal runaway. Laser patterning is at the core of our technology, and we must become a world leader in that field. To support our vision, we announced today a collaboration with IPG Photonics, a global leader in laser technology. Our alliance with IPG provides ongoing access to the most advanced laser technologies and has already resulted in our Gen2 lasers having 5x the power of our current Gen1, far ahead of our original scaleup plan. Second, in stacking, we are eliminating a frequent manual alignment of 4 independent punch heads and replacing them with a single punch head that stacks 4 batteries simultaneously. This is an example of one of the proof-of-concept projects we launched a month ago that has already been proven out long before the production tools are even built. Thirdly, we are making a major change in how we transport and process batteries. In Gen1, we used a low precision, low speed conveyance system that moves batteries between each assembly station. For Gen2, we have replaced it with a high-speed, high-accuracy linear motor that has only become recently available. This eliminates the need to move batteries on and off the track, increasing throughput and reducing the complexity, size and cost of the equipment as we can now process on the track directly. In addition, we expect it to improve our process capability and yields as the accuracy of the linear motor is often better than the Gen1 fixturing. And lastly, we have learned in Gen1 how critical automated vision systems are for both inspection and metrology. They detect issues instantly, drive faster yield learning, and increase equipment uptime. We have added significantly more metrology to Gen2 with this learning. Given our high and increasing confidence in Gen2 superior performance, it has become clear to me that we must begin redirecting resources to Gen2 even at the expense of the ongoing improvement activities of Gen1. From the beginning, we knew that improvement and learning in Gen1 were less about making Fab-1 run better and more about making Gen2 as perfect as we could. Our goal is to replicate multiple Gen2 lines in the future directly on our own and indirectly by licensing and joint ventures with our roster of high-profile customers and potentially incumbent battery leaders. For those of you familiar with semiconductor history, it is our blueprint for copy exact. We believe that the result of this change and emphasis will be lower volume from our Gen1 lines in Fab-1 until Gen2 ramps in 2024. It was a tough decision, but I feel it's the right one. Now I'll turn the call over to Steffen, who will discuss our financials. And after that, I'll make some closing remarks. Steffen?

Thank you, Harrold. Our detailed financials and the reconciliation between our GAAP and Non-GAAP results can be found in our shareholder letter, so I will spend my time covering a few high-level topics. We recognized a nominal amount of revenue in the third quarter as we focused our efforts during the third quarter on optimizing Fab-1 and shipped the majority of our batteries as samples for customer qualifications. Our adjusted EBITDA loss in the third quarter was $20.2 million compared to an adjusted EBITDA loss of $18 million in the second quarter of 2022. Excluding stock-based comp, our non-GAAP operating expenses in the third quarter were $19.4 million, down from non-GAAP operating expenses of $19.5 million in the second quarter of 2022, which also excludes stock-based comp. We closed the third quarter of 2022 with net cash of $349 million, down from $385 million in the second quarter of 2022 due to $20.6 million of cash used operationally and $16.9 million of cash used on capital expenditure. Now let's discuss our guidance. For full year 2022, we now expect to use between $130 million and $150 million of cash, of which we expect roughly 40% will be CapEx. We are lowering our cash use guidance primarily due to the timing of capital expenditure payments for our agility line and final payment milestones for our first Gen2 line. For revenue, we continue to expect to recognize between $6 million and $8 million for full year 2022 with service revenue being a significant contributor. Before I turn it back to Harrold, I want to highlight that in this quarter's shareholder letter and investor presentation, we are sharing details around economics of a Gen2 line. Many shareholders have asked us how to best model our Enovix scaleup, and we believe the Gen2 economics will allow you to do that. To summarize, we exited the quarter with a very strong balance sheet and with Gen2 underway and the caliber of customers we have, we believe we have the ingredients to scale and realize our vision of every person being positively impacted by Enovix innovation every day. I will now turn it back to Harrold for closing remarks.

Thanks, Steffen. Our task ahead is clear. Continue to push the boundaries of what's possible with our technology while developing and bringing up a world-class Gen2 manufacturing line to fuel our growth and satisfy our customers. On that first point, I'm pleased to report that we are now far along with a new technology node we call EX1.5, which fits within our first technology node, EX-1, and our second-generation node, EX-2. We have successfully built EX1.5 wearable sized batteries in our R&D line that equate to 965 watt hours per liter for a smartphone size battery, up from 900 watt hours per liter for EX-1. We anticipate sampling this technology next year to customers. This gives us confidence in our long-term energy density roadmap and our ability to move off the industry's historical trend of meager improvement. I'm more excited than ever with the progress we made with our technology, our customers and our Gen2 manufacturing line. The collaborations we have announced today with industry-leading customers and partners supports our vision and highlights the compelling value we bring to the battery industry. With that, I'd like to turn it back over to the Operator for your questions. Operator?

[Operator Instructions] Our first question comes from Colin Rusch with Oppenheimer.

You've obviously been testing this equipment and working on it for quite a while now. Can you talk a little bit about the decision-making and some of the triggers for shifting a little bit of the CapEx strategy and deciding to move forward with the Gen2 line in the way that you are?

Yes, Colin, thanks for that question. I think it's really not a question of shifting CapEx focus. It's really a question more of as we get further and closer to Gen2, we want to make sure from a resource, internal resource standpoint, we've got all the talents on that we need to make that successful. We spent a lot of time the last 2 quarters extracting all the learning out of Gen1. And I'm pleased to say, I think we're not seeing additional learnings come out, so I mean that effort is kind of timed out. And we basically, as a part of that, solved the big problems we think that were in Gen1 that go away in Gen2. We want to make sure we sufficiently staff Gen2 to make sure that that comes in to hit its objective and timeline. And that's what we've got to do. That, in my mind, is the most important thing for the company right now because that's the blueprint for how we scale our business going forward.

Perfect. That's actually quite helpful. Then shifting gears towards the customers, obviously, there's an awful lot going on, and you talked a little bit about having to prioritize customers. But can you talk a little bit about how you're moving through the qualification process with those folks and the design-in process? The numbers haven't shifted too much in the funnel, but I'm assuming that you've made some meaningful progress in discussions and moving through some of those technical details and planning and their planning process.

Yes. I'll just briefly comment and let Cam pipe in. I think from a manufacturing standpoint, we've delivered a lot of samples out of Fab-1 in support of the customer qualifications. Those parts have been hitting specifications and those qualifications have been progressing quite well. And I'll let Cam add a little bit of color to that.

Sure. Thanks, Harrold. Hello, Colin. Yes, to give you a little bit more of a sense of where things are in the funnel, the overall funnel is relatively stable in terms of the total dollar value, and we've been focusing on moving programs from kind of design opportunities at the top down into active design and then design wins. And I think we're up to 9 design wins now. As those programs progress through those stages, it really goes from sampling, R&D sales originally, and now most of our samples are actually coming off of Fab-1. I think we shipped to 25 different companies today off of the Fab-1 line. Customers run those cells through their test programs, really matching them up against their own requirements on their products. Then the focus switches to either using a standard cell, which we have a couple that have been defined off of our lines, or to move to a customization program where we build a cell specific to customers. We've launched a number of those. And then it really comes down to moving into full manufacturing qualification. Part of that is testing and kind of detailed reliability on cells off of the factory line as well as the auditing and the managing of our quality systems in the factory. I would say most of our focus now with these programs is kind of in those latter stages. A lot of effort going into the quals and certifications from a quality perspective on the line in preparation for more meaningful volume shipments next year. And then really through next year, a number of significant qual programs which ultimately will be planned to launch in '24 on the Gen2 line set significant volume.

Our next question comes from Bill Peterson with J.P. Morgan.

I wanted to get some clarification around what is left to I guess be solved for Gen2. It sounds like you still are on target for second half of '23. But I guess how much more work, if you can quantify, or what types of areas need to be completed in order to be ready for shipping in the second half of next year? And I guess sort of related to that, you talked about now gens and lines and fabs, but you really didn't talk about where this is going to be going I guess in terms of a fab footprint. Are you still thinking about the potential for 2 fabs? Or is this -- I mean how much is this the internal capacity or maybe partnership finance or other means?

Yes. Thanks for that question, Bill. I think relative to your first question, Gen2 is pretty far along in the design process. I would say detailed design process, and we expect that we'll be kind of going into final detailed design review towards the end of this year. We've got high confidence given the interactions, which are very regular, that that's going to pan out well, but that's kind of your final checkpoint where you've looked at every single part and you're ready to proceed. Kind of simultaneously with that, we're going to finish up the last of the proof of concepts to just validate the design things. I think those things are all on track, and those vendors are moving very quickly, so I'm quite confident we'll be in a position to get through that and then have that equipment show up in the second half of next year as we've talked about. Relative to your second question, Fab-2, for us, the equipment is really the long pole in the tent. And while we've continued to look at facilities and we have multiple options, we haven't made a decision yet. We'll do so. We're going to do it in a time that makes it advantageous to us, but rest assured, it will be before that equipment needs to have a home.

Okay, sounds like that won't be the long pole, but that's good to hear. I guess sort of when you think about your funnel and design wins, I'm assuming this is primarily against conventional lithium-ion batteries. You're taking the steps to really focus on getting ready for the I guess line 2 and new fabs. But I guess one of the risks are that competition could catch up or other -- your customers and the interests of customers may need to be looking at other means. I guess what are you seeing from the competition? What are the risks that are associated with having other let's say higher energy density silicon anode companies out there trying to intercept the market in '24? Just trying to get a feel for how the competitive landscape could evolve in the absence of having product, meaningful product in the market today and really not that much next year either?

Yes. Let me let Cam field that, and I've got kind of one comment after that.

Yes. Sure, Bill. With respect to competition, particularly in the consumer space, we're not seeing a shift in the competitive dynamics from what we've experienced over the last year or many years really. The industry continues to move forward at a sort of steady material-based set of improvements in terms of energy density. And we also are moving forward I think at a rate that's faster than the market. In our communications, we talked about kind of our next node of performance being EX1.5, getting us up to 965 watt hours per liter. What I see with the specific customers we're talking to is that, that is extremely competitive. We don't really see anything that's kind of out of the historical norms from the industry and people remain focused on our solution as really kind of their best bet to move the needle in terms of competitive advantage.

Cam, you actually added on what I was going to add on, so answered the question. Sorry, my bad.

Just to be clear, you're not seeing other sort of silicon anode newer players being in the competitive space at the moment? It's more they're looking to work with you and locking with you in the sort of '24 timeframe?

Yes. We certainly do see the industry as a whole continue to adopt silicon materials on the anode side. What we see is that most of those are blended with carbon. And ironically, as you kind of plot the improvement in energy density at kind of a product global, kind of global view, it just essentially adds to the 4.5%, 5% increase that you see every year in the space. And so that's something that we've always anticipated would happen. We didn't always know how it would happen. And if you kind of look at where we're at in our trajectory in terms of improving energy density, we still remain kind of 5 years ahead of where the industry is today.

Our next question comes from Alex Potter with Piper Sandler.

I appreciate the new color on CapEx guidance. I just want to ask a couple of clarifying questions there to make sure I'm understanding it correctly. It looks like $50 million to $70 million in CapEx for a single Gen2 line and you can make 9 million cells. My interpretation is that that's like smartphone, cell phone sized cells, assuming 80% yield. Is that the right way to think about that?

Yes, I think you're right. It can make 9 million smartphones sized cells. The OEE is a combination of yield and basically equipment availability. That's basically how many good cells you're getting out of, possible 100% you can get out of every moment of every day you're running. I think you've got it right.

And then you also mentioned sort of in the same paragraph that you could make in the same footprint, a similar line that can make 4x as many cells if you are focused on smart watches. Is the CapEx for something like that also in that same range?

I would say we're still in the middle of kind of doing the proof of concept of it. My guess is it would be slightly higher, but I think economically it would still be a significant, significant advantage over where you would be with a single battery per line.

Alex, this is Steffen. Maybe to give you a little more color, the way you have to think about it, we gave you the CapEx for a universal line. It can make small cells and large cells. And certainly, from the gross margin perspective, larger cells are more attractive. When we start deploying the Gen2 line, my expectation is that it gravitates from the mix perspective towards the large cells. From a dedicated line that Harrold was alluding to on a variable size, my expectation is that the CapEx will be higher, but the gross margin will look better overall.

And just so I'm clear, in Fab-2, you've not yet disclosed how many of these lines you contemplate building. Is that accurate? Or would you just start with one line?

Yes. We are proceeding with one line right now that will land in the second half of '23. Our plan is to actually add additional lines that would come in '24 into that Fab-2 location. We'll have more than one line running by the end of '24.

More than one by the end of '24. Perfect. Okay.

Our next question comes from Anthony Stoss with Craig-Hallum.

Harrold, I wanted to follow up on the new track transport system. It seems relatively new, and I understand the laser side looks to be much more difficult. Can you quantify maybe how much risk that this may introduce? And then secondly, I'd love to hear your thoughts since BreakFlow has been out a couple of months, I want to hear kind of the early customers that weren't afforded BreakFlow out of the gate. Now that they've had a little bit of time, can they come back? Or what's the reception been? And do you think most of your customers will opt to go with BreakFlow?

Sure. On the first point around the track, even though this technology is new, it's being made by a very reputable company. And so that technology, even though it's new I think is already out in the market and works quite well. I think it's a very low-risk thing in my view. The difference is that these kinds of systems were around a few years ago, they just didn't have the same performance. And this allows us essentially to eliminate having to move parts on and off this track for processing. There's just a bunch of overhead time you take out of the manufacturing process, which is great because it's not value add. I don't think there's a risk there. I think it's actually a much better way to run the line, and we're super excited to be able to do it. I'll let Ashok talk a little bit about BreakFlow or maybe and Cam about kind of from a customer standpoint and technology standpoint. I don't know which…

Happy to jump in. On BreakFlow, the plan for launching that is to launch that with the launch of our larger size cells. Essentially, it's smartphone size cells and up will have BreakFlow built into it. We're currently not thinking about offering this as a menu item for people. We think this is something that's inherent in the technology, and it's part of our overall value proposition for the product. With respect to customers that would not have it, the launch of our wearable cells, today don't have BreakFlow associated with it. But of course, the amount of energy in that cell is lower. Over time, we expect that all of our products will incorporate BreakFlow. And it's our hope that this becomes kind of a standard expectation from customers. Like why wouldn't your cell be resistant to thermal runaway? We think it's an important foundational technology there.

Our next question comes from Gus Richard with Northland Capital Markets.

Next year I think a majority of or a significant portion of revenue is going to be professional services. Can you just -- is that just NRE helping your customers design in your batteries? Or is there something else related?

Yes. I can comment a little bit. I mean I think each of these programs has some amount of NRE around them and so I think next year is a combination of production output and NRE.

Yes, Gus, this is Cam. I don't know whether I'd characterize it just as NRE, but these are essentially product development programs where we're customizing batteries specific to somebody's requirements. And so those programs can vary from a simple size change to enhancing the product with respect to for instance its temperature capabilities, etc. But they're all typically around developing products to meet customer-specific requirements.

Got it. And then in terms of the MOU you guys announced, what does that program I guess, for lack of a better term, sort of entail? What are you working with exactly with that customer?

Yes. Thanks for that question. We're super excited about this. This is another step in a long-term relationship with this particular customer. It's one of our strategic accounts. In fact, it's the same customer that we announced purchasing wearable sales for their next-generation smartwatch in Q2. Since that time, we've been working with them to try to put in writing the vision of the 2 companies of how we would work together, and that's, the MOU is a result of that. And while it's nonbinding, it's really the roadmap and the framework for working together towards definitive agreements that move forward commercially in each of these areas. And the areas that we're collaborating on together, first is batteries for multiple products within different kind of vertical segments of their product lines. Wearables, mobile phones, laptop computers and other mobile products. Second is customization of cells to their specific requirements often around these specific product categories. Third is collaborating with them in the area of proprietary active materials. Think about better-performing cathodes or electrolyte systems that they would like to incorporate into their specific products. And then fourth, collaborating with them on manufacturing and scaleup in order to enhance our ability to support their volumes over time, which if we're successful here, could be quite substantial. You put it all together, it's a nonbinding MOU, it's nonbinding, but we've spent 3 hard weeks or months negotiating every word of that agreement so that it accurately captures what both companies want to do together, and we use that as a roadmap towards the specific commercial agreements to come.

Got it. And on the last element of that MOU, the manufacturing CLP, this sounds like a roadmap in order to get the products that they want, ending in -- assuming this is one of the mega-cap companies, your ability to sort of meet or your mutual ability to meet their significant demand. Do I understand that correctly?

Yes, that's exactly right. And this is one of the mega cap companies. It's what we call a strategic account. And so given the volumes we're talking about, we don't expect to be able to support this customer's complete volume needs on our own. This is a piece of our model going forward as we look at joint venture partners and potentially licensing to hit those volumes.

And I think even dedicated capacity in place.

Yes.

Got it. And then just one housekeeping question. I think at the end of '23, line or Gen1 equipment will produce a little bit less than a million units. Is the second line in Fab-1 considered Gen1 or Gen2 or Gen1.5?

It's Gen1.

Our next question comes from Ananda Baruah with Loop Capital.

A couple if I could. Really, the first is clarification from the shareholder letter. In the language where you talk about Fab-1's focus on a handful of high-profile customer launches and then also qualification programs for strategic accounts in '23, are those one and the same?

Cam, why don't you don't you field that one?

Yes. No, those are not one and the same. In 2023, the earliest programs that are going to reach market are typically not the strategic accounts. Those are longer-term programs. But we're working with some pretty exciting products with some well-known brands that we hope to have on the market in 2023 and we can support those volumes out of the Gen1 factory. The strategic accounts, we're looking to start scaling those in 2024 with significantly more volume than we can produce in Fab-1. The focus for Fab-1 from a strategic account perspective is really working through qual on a number of different programs with I think we've said we're working with 6 strategic accounts at this point and have reached tech qual with 4 of them and design wins with a couple of them. There's a lot of activity there. It's supporting their prototyping and qualification efforts through '23 and anticipating volume production in '24.

Great. And Cam, could you do initial volume production with any of the big strategic accounts? Could Fab-1 accommodate that in 2023?

Potentially. It depends on the specific product selections and the volumes that are contemplated in that type of a program.

Awesome. And a quick follow-up, guys. There was, I guess sort of another clarification, there was a remark to an earlier question that Gen2 will gravitate toward larger cells. And I guess just sort of -- can you sort of add some context for us there? Given it also sounds like, Cam, Gen2, just sort of your remarks a moment ago about Gen2 really being used to ramp some of the big strategics, though it seems like some of the smartwatch business will also be some of the initial big strategic business. Can you just put that with the remark earlier Gen2 will gravitate towards the largest cells?

Yes. I think I would say if you think, Ananda, over the longer term, think of a factory that will have small cells predominantly running on these 4x lines that we talked about earlier. I mean, in the initial days with the first lines, I would view that we'd be doing both small and large cells on those first lines. But then as you get into '24 and '25, you'll have dedicated lines tuned for the small cells and then this other Gen2 line will become kind of your standard for the larger cells. Because economically, that's what's going to make the most sense. But in '24, I would expect we'll be doing both of those things off those lines probably. Undoubtedly.

Our next question comes from Derek Soderberg with Cantor.

Thanks for taking my questions, and it's great to be back on these calls with you guys. On the comment that Gen2 could be improved by up to 10x in terms of output, I think the wording around that was that it's going to lower the cost per unit. But I think you guys put out a similar gross margin estimate target of 50%. I'm wondering if you can help me square that commentary. Steffen, are you guys sort of managing towards 50%, or can Gen2 equipment sort of drive margins beyond 50%? I guess how should we think about the impact Gen2 equipment is going to have on margins?

Thanks, Derek. From a Gen2 perspective, the way you have to think about the margin, our long-term model is the 50% gross margin and 30% EBIT. The larger cells will have exceptional margin at that target range. The small cells at the 4 that Harrold was talking about, will have larger gross margins blended with the product mix between small cells and large cells and phasing out the single small variable lines. That's what we are targeting to get to the 50%. It's a blended range. It's a blended number at 50%.

Got it. That's helpful. And then I also wanted to ask about the EV announcement on some of the progress you guys are having with the DOE program. I think you guys have said 1,500 cycles while retaining 88% capacity. I guess I'm curious, how does that compare to other batteries on the market today? I mean is that a differentiator for you guys potentially? And then also, I'm curious where are you guys tracking on a watt hour per liter basis on those EV test cells at this point?

Yes. Thanks, Derek. I'll let Ashok kind of talk to this one as he's been kind of driving a lot of this effort.

Sure. Hi, Ananda. Yes, certainly 1,500 cycles for a high silicon blend, let alone 100% active silicon blend, as well as 10-year calendar life are exceptional numbers for an EV class cell. And it really shows the power of our architecture. It is definitely differentiated from I think other products on the market. In your kind of your second question is how would this manifest itself into a product? I think I'll let Cam kind of answer that question, but we have a dedicated team that is taking this information and this data and translating it into a product that customers can use.

Yes. Thanks, Ashok. As we announced maybe a couple of quarters ago, we created a dedicated business unit called Enovix Mobility. Their charter for this has been to establish relationships with the major automotive OEMs worldwide. And then to start working with them on essentially translating our clear technology capabilities that have been proven on the consumer side and then translate them into an optimum product in the automotive side with the goal of early next year. Essentially picking our dance partner or partners from the OEM side. I think they've been making really excellent progress there. One of the interesting points is that it turns out perhaps one of the most important advantages to the architecture that we've developed is its thermal properties and its ability to enable fast charge. When you add the silicon anode piece for energy density, the cycle life which Ashok commented on, and you add that to a cell architecture that is just extremely beneficial from a thermal fast charge perspective, we think we have a really winning product here, and we're getting some great feedback along those lines.

Yes. And just one last comment. In terms of volumetric energy density, we will easily beat the kind of the long-term DOE goal of 751 hours per liter by scaling up those -- that chemistry into larger cells.

Our next question comes from Chip Moore with EF Hutton.

I wanted to ask on the Gen2 Autoline, getting to that 9 million cell level you laid out in the shareholder letter, is there a good way to think about that ramp as you build that out?

Yes. We've got those first lines hitting the floor in the second half of next year. Towards the end of the year, early part of '24, they're shipping qualification samples to customers, which doesn't actually consume that much capacity. It basically just starts the clock on those quals, which could be a month or several months. And then you're basically ramping that capacity throughout '24 in terms of the line's capability. I would kind of think of it as a bit linear throughout the year. And you'll be probably still working on some of those improvements into '25, but a significant amount of that capacity growth will happen in '24. [Cross talk] And as we talked about earlier, our plan is actually to land some additional lines in that same state in '24 as well.

Okay. No, that's very helpful. And then I just wanted to ask on just the increase in throughput, the 10x increase, maybe you can talk about just the flexibility that gives you. Whether some form factors for new markets or maybe there's limited volumes upfront, just what that potentially gives you?

Yes. I mean it certainly opens up a world of possibilities. I think there's -- we obviously understand kind of the established markets and products, but there are some emerging markets that are coming at us that I think would give the opportunity to really leverage that. Certainly, also the 4x kind of wearable cell line is going to be a game changer for some of these markets like augmented reality when they take off. I think that effort is really directed at being ready for those opportunities when they arrive. And we think that's the right investment for the company to make.

Our next question comes from Marc Cohodes with Alder Lane.

Did I hear you correct saying you had design wins from some of the $200 billion customers? Is that right?

That's correct.

Okay. We take that concept, and these customers are obviously smart, and they know that Fab-1 was a beta plant all along, proof-of-concept plant all along. These guys have design wins, they must have a schedule of when these products are coming out, right?

That would be a good assumption.

What prevents them from funding their own Gen2 lines right now?

Yes. Marc, I mean obviously we can't get into specific discussions around specific customers, but that's certainly part of our vision. And if you look at the MOU that we just signed, one of the provisions there is to look at exactly that.

Marc, this is Steffen. I think you need to look at this as a capital-light opportunity for us to bring multiple Gen2 lines in very quickly.

Under that concept though, Cam, why wouldn't these $200 billion customers simply fund Gen2 lines right now? I mean it sounds like Gen2 is ready to go. And if you guys are ordering equipment for Gen2, why couldn't the $200 billion customers order equipment and you guys run them. Why can't that happen tomorrow?

It could. This is Harrold. I would say, Marc, we've got -- we want to get through this final design checkpoint in the next couple of months, so that we've got that locked and loaded. I think we would have the confidence at that point to move forward with additional lines if customers were willing to help do that. And we'll do some of it on our own, but I think we won't shy away from customers wanting to be a part of that solution.

You're potentially 2 months away from the good to go on the Gen2 line, is that it?

I think we're looking at getting kind of signoff end of this year, early part of next year, but in that ballpark.

I would now like to turn the conference back to Mr. Rust for closing remarks.

Thanks, everybody, for the time today. I just wanted to kind of wrap up and hit on I think the 3 major takeaways that I want you guys to all have about the company. The first is, customers continue to tell us we have the best battery out there. The work we talked about on the EX1.5, which is this new kind of intermediate technology node, is just kind of evidence of us continuing up that energy density curve in support of our long-term model. We think that's super powerful and puts us on a curve that others can't be on, which is great. We've also made a lot of progress I think in the technology with some of our key partners. And we mentioned the IPG partnership today, which we think is very critical because we're going to be a big, huge and laser consumer, and that's a big part of our business, and we need to be world leaders in that space. Second is that we've got the world's biggest customers on us to make products for them, and we want to capitalize on that demand. We're just very well positioned with our customers. And the third is that we're ready to go with this Gen2 line. We've done a lot of hard work on Gen1. That's been loaded into Gen2, and we're going to be ready to execute on that to grow this company over the next couple of years. We think that puts us in a fantastic position to satisfy our customers and deliver value for our shareholders in the future. And with that, I think I'll wrap up.

This concludes today's conference call. Thank you for participating. You may now disconnect.