Enovix Corporation (ENVX) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to today's program, a special presentation by Enovix Corporation Executive Chairman, T.J. Rodgers. [Operator Instructions]. With that, I'd like to turn over the call to T.J. Rodgers to begin. Please go ahead, sir.

Hi. My name is T.J. Rodgers. I'm the Chairman of Enovix, and I'm here to make a special presentation to shareholders that was promised about 1.5 months ago. I have 2 guests today -- 3 guests today. In order from the far side, Ralph Schmitt, our VP of Marketing and Sales; Ajay Marathe, who is the new COO; and Raj Talluri, who will be the CEO shortly. I'm going to introduce them in detail in the talk, so I won't do more than say hello now. Okay. If I had one symbol that would picture why we're here today, it would be this one. This is off my cell phone. It is a reaction at 8:00 on November 2, the day after we made our November 1, Q3 earnings call. And this is about as perfect to picture as the investors are unhappy as you can come up with. And I'm here to talk about that today. I started out, I asked our CFO, what did you say, and I want the exact words from the transcript. I don't want to get some text. And I got this. We expect Fab-1 improvement activities to extend into 2023, but at a slower rate given the decision to redirect resources to Gen2. Given this, we expect to exit 2023 at a run rate of under 1 million battery cells produced from the Gen1 equipment in Fab-1. There is opportunity for significant outperformance depending on the timing of the completion of ongoing Fab-1 improvement projects. And I read that and I said, I don't get it, and I read it again and I didn't get it. And I finally was saying, okay, what did you say? Started to make it clear. One of the reasons why we had this precipitous drop. And the next thought I had -- I often say this [Foreign Language], and we will do Ingles in the future on these calls. No more scripts, no more lawyers, people in a room, telling you what's going on. Okay. One thing I've got -- when you see a box like this in this presentation, it's a quote from a shareholder. And this is a quote that I picked to represent this image here. People are openly questioning if the product is manufacturable. Indeed, you know Charlie Anderson, he's our IR guy. I asked him to give me a memo on accurate shareholder feedback. And he withheld names, so I could use quotes. By the way, this goes on for 7 pages. That first page is interesting. After that, it gets a little wearing on you. People are openly questioning if the product is manufacturable. These are from top 10 institutional shareholders, big guys. We're lucky to be at $10. Revenue in 2023 was supposed to be $176 million, now it's $8 million. When you can't name where Fab-2 is going to be, it appears you have no plan. This should be like a biotech, there's access schedule that everyone can understand with identifiable milestones and you can update us on the milestones that they are met or not met. And from another shareholder, the problem with your message is that we don't know how to walk, but trust us we can run. Okay. Well, let's say the shareholders challenged us here. And frankly, I don't disagree with any of these, and that's what I'm here to talk about today. Shortly after the crash, I was appointed Executive Chairman. As Chairman, I would come here once a month plus other meetings. And sit in the boardroom and complain. As the Executive Chairman, now I come in every day and complain. And I'll do that for about another few weeks, and then I'll go back to my old job. I came in and said that the Board was going to help. Our Board has, by design, several successful operating executives, who are committed to spend whatever time is required at Enovix to ensure the company's operational success. We are silicon and Moore's Law operations people and comprehend to see change opportunity at Enovix that its technology offers. I'd like to point out that the 3 gentlemen I just introduced you are all silicon executives, former silicon executives. We're going to infuse Enovix with a silicon industry mindset. I think that industry has been exemplary in the way it has transformed the entire world and grown over $300 billion. And the mindset that is required to survive in the silicon industry will be in the future required to survive in batteries. Okay. I outlined -- in that same press release, I outlined 3 problems. The lack of clear and transparent investor communications. I do want to point out that I've worked with Enovix for 10 years and Harrold and his team, and he's always been honest. And I'll show you where the problems are in communication that led some of our investors to say we're outright dishonest with them. I don't think that's true. I think they were reasonably misled, but I don't think it was deliberate. Problem 2, the delay in projected underperformance of Fab-1, that was that first quote I gave you. And I said here for the record in this bold press release. Fab-1 is going to work and ship a lot of batteries to our customers, period. And the third problem, the delay of the Gen2 auto line. That's our engine of copy exact use the Intel term of how we're going to scale the company up and the Gen2 line is that line. I'm going to discuss those 3 things. I'd like to make a couple of other points. We've got $349 million of your dollars left in the bank, and that money is going to produce world record batteries out of Fab-1, and it's going to create the first Gen2 auto line. So we don't need any more help to get at least that far. And then at the end, I reread the press release and I put in a line. I said, by the way, the next battery shift from Fab-1 will be serial number 4163 with 0 returns, and I'm proud of that. My -- in my days when you got first silicon and then you got your first samples and then you sold them to your first customer, all those are dragging events. And for some reason, I don't know why, that's the very first time we ever said how many cells we have shipped. I'll tell you why in a few minutes, it's pretty evident. Today, as I sit here, the cumulative number of batteries now shipped is 8,812 through Q4. And we expect to double our shipments every quarter. Now you can say that's small to twice as small, but I can tell you, you start doubling 8,812 and you see how long it takes you to get to a number that does have meaning at $10 a battery. We took Enovix public with SPAC. And I've got a few slides from the SPAC investor presentation here. In order to tell you about us and how we think about Enovix. First of all, the crash to $10.74 is our fall to. After all, our SPAC sold you stock. And although it's up, our investors are -- some of them quite unhappy, and I think they have good reasons. So we'll talk about that today. In the SPAC -- again, this is the SPAC S-1 presentation. Our SPAC bragged about Enphase, our success in Enphase. In this case, the stock price graph of Enphase over the last few years with a market cap of $18 billion. I came on the Board of Enphase as a favor to Kleiner Perkins that invested in my company in 2017. A few months later, it took us [indiscernible] silicon guy and asked them to be COO and he accepted. And then almost a year later, the same guy who's done an outstanding job as COO was promoted to President. So that's kind of the story, get a good silicon guy and get them in there and start changing the culture, and I'm trying to replicate that story here. This is -- we bragged about our Cypress chip auto lines to sell stock that eventually went to Enovix. And here, we see an auto line. These are wire bonders, die attachers, wire bonders. That's a mold in that machine there. This machine is 50 meters long. It goes through the wall to the other side. And this was my personal project, that is I ran the weekly meeting for this, and we built 10 fully automated lines that took chips on blue tape and took them all the way out -- to put them on tape and reel with a shipping label on them. We built 10 of those lines. So that was the back-ended Cypress. So I was tired of dealing with manual assembly in Asia. Line 1, just for your information around 3,600 UPH. And by the time we got Line 10 done about 2 or 3 years later, it was up to 10,000 UPH. So what we're doing has been done before. This is the first example. We also brag in our SPAC about SunPower. SunPower the company that made black panels at a higher wattage than its competitors. That, by the way, is my schoolmate Dick Swanson, who is the CEO of SunPower, and that's the roof of Cypress Semiconductor there. We bragged about the second set of auto lines. These are the auto lines that ran silicon wafers. It took us only 5 months from installed to silicon. And it took us only 11 months to go from 10% to 90% yield. So this was a good record, and we actually modeled -- perhaps one of our problems, we actually modeled our plan at Enovix after this plan. We also bragged about the complexity of the SunPower auto line having to include diffusion. And in this case, right there, sputtering aluminum type tungsten and copper. So this was a complex auto line. We also told people about SunPower's low-cost plant that got in Manila to house the auto lines and the people that did it [indiscernible] we'll talk about later, but ran manufacturing Cypress and did the silicon auto lines I showed you, Manny Hernandez, who was the IPO, CFO of SunPower. And Greg Reichow, who is the Cypress engineer, who we transferred to run the auto lines at SunPower. We deployed 4 silicon industry executives to watch over Enovix, this is at the beginning. So the Board included me, Manny, Dan McCranie and Greg Reichow. I'll talk about these guys later. And then we gave the S-1 criteria for the target company, meaning this was an official document submitted to the SEC saying what were we trying to find because at that time, Enovix had not been identified as the target and was one of several. I'll go quickly through the grading, public company readiness. To me, that was still out [indiscernible] a technically dominant product. We absolutely have it. Customer endorsements, we have them, and I'll give you some more data today. We've been a bit too sparing, I think, on data by customers. Where did we run in the problems, decision-making, making decisions and moving on, taking responsibility for problems. These are cultural problems that we're working on. That is one of the reasons I'm talking about a silicon shift here. Culture that speaks and rise precisely. Well, you know more about that than I do because you've been on the wrong end of it. A culture that is passionate about delivering results, which they are world-class batteries, but not necessarily on time. Every fuel cell and/or battery company have ever dealt with [indiscernible] now have the attitude. We're working on something that's very hard to do, and therefore, it takes a little more time, and we always get surprised. So we'll get there when we get there. And of course, that doesn't work for a public company. A culture that respects capital. Now Enovix is a tight company. They don't spend money. They don't fly first class or anything stupid like that, but they're not tight with capital, and they don't have the respect for capital they should. And I tell the ground there, talk more about that later. A company that is impatient with delays in new products or initiatives, we won't tolerate being late with our new product. We won't tolerate being late on the yield curve. And these are the things that we're working to change right now. Finishing that list, we were looking for somebody with a dominant share in a growing medium-sized market check. We've done it. We don't want to be a tiny player in a huge market. We want to dominate market, in this case, through portable electronics. We're looking for a second product on schedule. So they don't get a one-product wonder company. They've done that. Silicon Valley company in a formal plan to meet Street expectations. Okay. This is the formal plan to meet Street expectations. It was -- this is the merger with the SPAC. This meant that it was the PIPE plan -- B plan that we gave to investors. Harrold signed it back in '21 and -- in February '21, and I signed it. And then in a relatively formal ceremony we drag everybody into the boardroom, all of EPs, anybody that had an important number in this plan, and we said we want you to sign it, and we're going to bring this plan out with your signature on it later if it doesn't work out. In retrospect, that maybe is a little bit too heavy handed. Worked in the silicon world, but what happened, it created fear of failure. Oh my god, what if we don't make the plan. It's really going to happen. And that led to a slowdown of decisions in defensive communication, which you're all aware of. So my fingerprints, my method of making people countable are on this culture problem we have as well. It's not just their problem. This is the PIPE plan that we gave to investors the exact copy of the plan. And all you have to do is look at a few numbers on here to understand what the problem was. Okay. First of all, 2021 revenue [ NRE ], we footnoted it, nonrecurring revenue. So we told everybody we would get that. And by the way, I don't want to -- I'm not going to talk about [ NRE ] revenue today because we will become real by making and shipping products. But [ NRE ] revenue is very important because that means some company's giving us $1 million or $2 million to make batteries for them a custom battery to guarantee future capacity. So it's important, but not at the expense of shipping product revenue. We had a debate. I remember the debate well in the boardroom when we said should we put the footnote in 2022? Should we say it's going to be a mix of products revenue? And at that time, we felt it would be more product revenue than not, but we decided not to put the footnote in and simply to report revenue as an aggregate. It was against my advice. Again, I was the Chairman, not the Executive Chairman. If I had my life to go over again, that little 2 would be in the 11, and we'd not be having this meeting right now. Okay. Then BAM, revenue growth of $176 million, that was in the quote. And the assumption there is Fab-1, where I'm sitting right now, people making batteries behind me. I would have 4 lines running. And they would run into certain efficiency and that efficiency would ramp, et cetera. And when you're sitting back in February, February this year and you're looking forward and say, gee, that's 2.5 years away before the third and fourth quarter '23, we should be able to get that done. We signed up for that, and that was that blue plan I just showed you. So what happened? The lines didn't work, they became manual. And we have 194 operators way above our plan. We have more -- we have over 80 yield engineers, again, above our plan, and we spent $80 million instead of $34 million. And I don't -- I'm not apologizing for that. We're doing what we have to do to be successful. But this is the first obvious big problem after this one. The benefit was on CapEx. We're supposed to spend $117 million, we spent half of that. The reason we spent half of that is the machines didn't work the way we want it. And I refused to replicate the equipment that wasn't going to make the standard required for us to be successful. That's simple. And there, we had a problem, I call money poising. When start-ups that have been grubbing for money for years, all of a sudden get a few hundred million in the bank, they sometimes think they can buy their way out. And they can't. You cannot replicate equipment that doesn't work perfectly and spend a lot of money and hope it's going to happen. And I hope investors -- I get asked, when are you going to take money? You need money, you may have a liquidity problem. I keep getting pushed by investors. We'll ask you for money. I'll tell you when we're going to ask you for money later on. But right now, money is not our problem. Execution is our problem. And the quote I've got there is you can't buy your way in. If you want to be a company, you have to be a company, you can't buy one. You can buy a company, but you can't buy your way into being one. By analogy, we have to walk into the ring alone for 51 heavyweight fight, and we have to walk out of that ring. That's what we have to do. And the best analogy I know for that is this one right here. You have to get up at 4:00 in the morning. You have to have your breakfast in 3 minutes, have your eggs, get your protein and get out and run and start working at 4:00 in the morning. That's what we have to do as a company, not get more money from our investors and spend it. And this is what we're working on right now that I've been talking about. SPAC provided a good board with relevant knowledge. Greg Reichow, built and ran the solar cell plant at SunPower, the one I showed you. And he built and ran the Tesla Fremont plant. So obviously, a great guy to have on your Board. Dan McCranie. Now again, I've got -- this is a slide from our SPAC pitch. I've only outlined a couple of critical points. McCranie has been on 10 semiconductor boards, he averages 6 years of tenure. And 6 of his boards involve significant restructuring, so he tends to go to companies that need help and help fix them up. Manny Hernandez was the CFO of both Cypress and SunPower at their IPO. He ran their IPO and created their financial structure. So he obviously is a great guy to have on the Board. He also, by the way, deSPAC-ed us in record time. And for me, if I go through my resume, the things that matter, we did our IPO of 37 months after a Series A funding. 3 years and 1 month, and we built a fab and got it running and got the profitability during that period of time. So what I bring here is an insistence of getting things done quickly. And that is countercultural in some cases to where I am. I also wrote a book called No Excuses Management. And it was a book on the business processes that were used at Cypress to build a $100 million company from scratch. So it's got a whole lot of stuff in it of how to make a system cheaply with Excel and Power Point to get something done before you can afford Oracle or whatever bigger system you're going to have. I want to point out to you that the Board was active. A lot of people wrote me, later, some of them pretty hot. And I want everybody to know that we were active. We started addressing the PIPE plan, this, the vague one, on August of 2022. On 08/05, we discussed the CEO change. And I've always had an open relationship with Harrold. And I went in and told him. I said, Harrold, Board talked about what if you don't make it, first time ever. And I kept open with them for the entire process. We launched the COO hiring, at first tried to get [indiscernible] that didn't work out. Ajay was a great catch, and I'm equally happy. We discussed -- On 10/03, we discussed the mechanism for a CEO change. I talked again to Harrold. Then I took over the COO search, which was doing -- going slowly through the bureaucracy. And I went through my first interview on the telephone to an offer to an acceptance to a press release, which I wrote myself getting Ajay here. And again, I'll show you his resume later. We had the big drop. Then we launched the formal search for a CEO. In that case, the Board said, look, our job is to do what's right for our shareholders, and we obviously have to look at our options now. And I agreed to that. And Harrold and I worked on that. But in my case, and when I became the Executive Chair, I looked at it as the beauty contest. Harrold was my candidate. McCranie was out looking at external candidates. And we were trying to find the best option for the company. Now some of you may be saying, well, really, that does sound credible. It is credible, as I'll show you in a minute. We got Ajay landed, okay? And then that was in October -- November 10. And then just a few days, Christmas Eve, actually, we got to vote to hire Raj as CEO. So in the beauty contest, this guy's resume, as I'll show you, blows in the dark. And it was really fortunate for us to find him. Harrold was one candidate. Let me just remind you, if I showed you his resume and said, would you work with this guy. BS mechanical engineering, MS from Stanford. Ran a company called -- he was in a FormFactor. Ran operations in FormFactor. They IPO-ed and they got big and they were the premier probe card maker in the world out of Livermore. Comes from IBM, ran a disk drive fab, real engineer 94 patent 63 more patent. Cofounded Enovix, raised $789 million. And the current market cap of our company, which we'd like to raise is still $1.9 billion. So I'd just tell you, if this resume floated down sand, it would get grabbed before it got to the Stanford shopping center. Then I came out as the Executive Chairman with a set of principles like I want to plan and I want to plan to follow this format. I wasn't trying to dictate the plan, but I was trying to make sure the plan fit into what the company needed pretty straightforward. I was right and it was late, and I said I want to review the plan on the 126 Board meeting. We are on schedule for that, and we're actually through a couple of drafts. By the way, I revised this a couple of times from the great [indiscernible] from the revision. The major assumptions, the AOP must be clearly stated in writing. It turns out that was more difficult than I thought, because that clear thinking committed to writing hadn't happened. The AOP financials and milestones should have had -- should have 80% achievability. This is your meet and beat number where I don't want an AOP that is great the day you put it out. And then it's the most [ rated ] thing in the world like that plan I showed you before, when you actually get there. Okay. EPR/PCR system, one bit of jargon, equipment procurement review/process change review. This is how you develop equipment, and this is how you measure the process. They're codeveloped. This is a Cypress system that was used to develop Moore's Law technology. Again, you go back to semiconductors, every 2 years, your technology becomes obsolete in Moore's Law. You live in a culture that says, I have to be somewhere in 2 years. And the other cultures, it's not just batteries and fuel cells go, well, we've been working 4 years in this technology. It's really great. And this is -- in the thought that the [ Grim Reaper ] was only 2 years out there doesn't cross their mind. That's one thing I find about silicon people and mother companies. So this system is a formal system that turned multiple turns to develop multiple generations of Moore's Law. It really does work, it's complex. It takes a lot of time. That's because you got to do a lot of stuff to build a new generation fab. So I said the EPR -- and I'll call it EPR in this presentation. I want it specified and signed by me before any more POs are placed. So I put the kibosh on POs. All manufacturing equipment must be compliant with EPR/PCR. And I warned people because there had been some gaming people not here anymore. There had been some gaming, gaming the EPR/PCR spec going through the actions in the form, but not doing the substance will result in termination. Fab-1 must become economically important, not necessarily profitable. We have a small fab in Fremont, California. But it has to be economically important. I find that it's $1 million or more in revenue. And I want a customer to disclose that our batteries enable the product. Our watch, cell phone, whatever couldn't do what it does without the Enovix battery in it. It wouldn't be as safe as it would be otherwise without Enovix battery break flow in it. And I want some customers to like us enough that they will come out publicly with that. So that's a guideline for the plan. Fab-1 must create remain on a detailed Board-approved annual operating plan, AOP, manufacturing plan. We're working on that now. Fab-2 must demonstrate economic viability to the Board before its launch. There are many, many comments about you don't know Fab-2. You haven't said where Fab-2 is going to be. We bounced around between Utah and Arizona and Texas. Just to give you a foreshadowing of what I'm going to say is because we couldn't find a way to make batteries in the United States to make a company that had 20% profit. And that was never our plan. Our original plan was like SunPower. SunPower put its wafer fabrication plant in the Philippines, Southeast Asia. And that was a reasonable plan. And then we decided and we decided we were going to put Fab-1 here, engineers being close, all the standard arguments. But we're now talking about the production fab. So we'll talk more about that later. But the point is, that is going to be life or death, and it better work right and better be cheap and it better have high yield and make a lot of batteries. Gen2. This is our second-generation line must work. And there, again, I'm staying compliant to the system, as agreed in writing by [indiscernible]. So he's a real stickler on this 200-page SPAC, must follow the SPAC line by line. And I brought him as the consultant. I did not have enough time to literally spend the weeks here it would have taken to go over EPR/PCR. And besides that, he's better at it than I am. So we've hired him. That's what he's doing for us. Before the Board approves any POs, Gen2 equipment owners will prove to the Board in bold that they have embedded all learning from Gen1. So Gen1 is not working the way we wanted to. I'm going to explain that in detail in a few minutes. And Gen2 can't have any of those problems, and you have to prove to the Board that. The company will prioritize putting break flow. You may have seen the video, it's on our website of our safety device, which prevents or at least limits greatly battery fires, as quickly as possible on the Gen2 line. I added that in later. And finally, [indiscernible] is really quite important. All R&D projects must have specified new technology plans and be currently on schedule and fully staffed. A new technology plan is a silicon thing. All silicon companies have as a chip plant. I want to make a chip. It's going to cost $8 million. Here's how many people I need, here's how long it's going to take. Here's my face gate plan for milestone. Here's the return on investment. No chip company would launch a chip without that. And I want to get all of our projects here. We only have 5 right now, all of our projects here on a new technology plan. So they're all lined up and linked up, and that's a problem. So short form, make Fab-1, start shipping. Get Gen2 line to work for real and make R&D more productive with new technology plants. So I put the afterburner on getting Ajay Marathe in. Masters degree in IE from Texas Tech, AMD 23 years. I met him at AMD, I actually tried to hire him out of AMD, and they promoted them to an equivalent job the one I was using to hire him. And I didn't get him in Cypress. Ran the Thailand plant, which is 6 million units a week. And we wanted a guy who does 6 million units a week and think that's normal in the company. VP of Ops for Computation Products, they had him run a business. This is the one that competed head up with Intel. VP of Ops for Asian assembly and test. That was all of Asia 4 plants. And his last job there was CEO of AMD India, which is their LLC that was their representative in India. After a bunch of time at AMD, he was 10 years at Lumileds as COO, the lighting company. And at Western Digital, also running operations, the big data storage company. One of the best manufacturing guys I've run into for a long time, comparable to my guy that I bragged about earlier, we were very happy to get him. That's why accelerated his offer. So Ajay has come. This is his 49th day. I explained to him yesterday that the 49 days of the 3 days when he inherits other people's problem on day 50, they become his problem. So in his last day of freedom, here's what he's found in this first 49 days.

Thank you, T. J. Really appreciate the introduction. But very quickly, I have -- in the 38 years I've been in the industry, here mostly all in silicon, working for AMD. Many of you might have forgotten, we started that 8,286, which is the heart of the -- any personal computer. I've handled that ramp all the way from there to 8th generation microprocessor exceeding the first gigahertz. All those ramps were similar in nature, vertically straight up, yield's not looking good, focus on all the elements, which is not rocket science, which are given here. Ownership and accountability. Every rejected units, every down machine needs to have an owner. And that's -- we have already started this. These are a list of 8 or 10 initiatives, which we have already begun on. Machine-centric yield plants, again, not rocket science, specific actions with co-owners. This is all about maintenance, engineering operations. Coexisting, working on problems real time with full ownership and accountability and transparency. Cost of nonquality programs. This is something -- you detect problems early so that they don't accumulate cost and later on get rejected with a much higher cost. So drive down the value of the scrap units. Again, you might say not rocket science, but operations is not about rocket science, neither it is about battery science. It is about discipline. It is about hard nose blocking, tackling and working on these issues, designed for manufacturability balance the yields with tolerances without compromising performance, without having quality issues. [ RIP ] count, discipline on MES. MES is the manufacturing execution system, every unit is accounted for. It either gets shipped to a customer or scrapped and accounted for with the owner. The Japanese 5S cleanness order program. Again, nothing rocket science, very well documented, the 5 Ss as in sort, straighten, standardize, shine and then sustain. And added to that is safety, obviously, As I was walking up the stairs today, I forgot to add the 6 S, actually, it should be 6 S program. So that's what we are implementing full-blown world-class supplier program, again, not new to the semiconductor industry. Having senior executives on speed dials from the suppliers, who you depend on every day to supply you good parts so that you never run into a problem after what they supply is here in our premises. I'm a huge -- not a fan of incoming quality inspection. Those are gates, which are unnecessary. But for that, you need a really good supply network, which you can depend on. And the -- limit remote work as much as possible. In this day and age, we are getting used to that back again. But I'm a huge fan of everybody comes to work every day. You're in manufacturing operation. You don't work remotely and be effective. So we'll be working on that very rigorously. And while we are at it, we reorganized manufacturing already. We moved one of the layers, reduced the number of managers, who had the title of managers, but really didn't manage anybody or maybe 1 or 2 people. We combined that. This is not just to take care of cost, structure, infrastructure. This has to be all about significantly improved communication between the top and all the way to the bottom. Every single operator needs to feel responsible for the goals that T.J. just highlighted in the initial part of this presentation. And while we are doing this, we're going to double the output, as T.J. said, from last quarter to this quarter and keep doubling it and exceeding that every quarter thereon. So those are my first 49 days, again, like T.J. said, these are all my problems starting today. Actually, they were -- by the -- what I've been brought up with they're once -- day 1, they're my problem. So -- but we have a great team here, which is working well together. Thank you.

Okay. Continuing on, I did some manufacturing guiding principles also. This is an important slide for investors because it's got a lot of the answers to questions in it that you've been asking. First, a couple of terms, proof-of-concept, POC. It's the process to make equipment heads. So heads are the steel things that touch the product. And you have to show they work with proof of concept. They have to be validated that they do stacking and laser, et cetera, and then they get automated. So you can think of a machine as being heads like over 100 of them in automation, for example, a conveyor belt, and I'll talk about that later. Now some terms we've used and not with enough definition in our press releases, R&D line. It's an existing Fremont line. It's actually down below us here, makes 20 batteries today, and it uses Line 1 POC proof-of-concept equipment. That is the very same as used in manufacturing is used in the R&D line. Line 1 is the one we brought in the airplane, it's a Fremont wearables line, meaning make small batteries, uses the same heads, but it's nonfunctional for automation point of view. That means this rated capacity of 550 UPH is really more like 100. And obviously, that [indiscernible] with output and promises. Line 1 is going to make 180,000 full production revenue quality units in 2023. There will be a mixture of the [indiscernible] cells, the wearable cells that sell for $5 and the bigger cellphone batteries to sell for $10. We will continue -- Line 1 will continue to be used for production in the future. And this is a shareholder comment. Again, I thought it's very relevant, so I brought it in here. I would actually like to see you run all out for Gen1 no matter what it costs to get higher volume. So be it, even if you did it in a terrible cost structure you could prove you can manufacture. I don't care if you have to build them by hand. You're absolutely right. Matter of fact, that Board quality comments some of your name and make an application. Yield in Line 1, 0 for 4 months. scary, I'll talk about this later. It's 42.5% as we sit here, and that's the real number, a rolling average, and we're going to get to 60% by the end of the year. Line 2 is in Fab-1. It's only a partial line. We only built half the line. This is the cell phone battery line, different size battery. So we've got the laser cut and stack with POC equipment, but it doesn't have the back end, the bagging. And we did that because we didn't want to commit to the second half of the line 2 until Line 1 worked. That was the savings of money I showed earlier. Line 2 units will be sealed and tested in the existing Fremont facility. Line 2 will be activated to make 5,600 units this year. And when Gen2 turns on Line 2 will be obsoleted. We will pull a plug and move the next thing into Fab-1 that we need to work on at that time. The Gen2 line uses mainly the same POC heads that Line 1 does, but it's more parallel and faster, 1,350 UPH, I'll talk more about the credibility of that in a minute. It's nameplate capacity is 9.5 million units a year at 80% OEE. 80% OEE meets 80% of the theoretical output if it ran perfectly 24/7 every day. And that's an achievable number and a good manufacturing line, but I've bolded when ramped. One of the problems I have some investors think we get sign a [ PO 1 ], not 1, more like 30. And then a quarter later, you get the machine and the quarter late, you start putting $100 bills, not the way it works. But these ramps, the first one is going to take a year. I just bragged about a 50-week ramp for SunPower. And after that, they'll turn on a lot faster. The Gen2 line will go to a new Fab-2 in an existing Southeast Asian low-cost site. It's going to be offshore because we need to make money in the long haul. And that's new and different from what you've seen before. And it's consistent with our original plan. And we will announce to you what that site is by July 2023. We're having a -- negotiations right now with the various countries in order to get the best deal. Design is -- and by the way, this is the reason right here, this thing hanging over us that we kept waffling on the Fab-2 site. Design is completed and the Gen2 line design is completed and will be Board approved by March 15, period. That's today, you're going to see the approval or earlier. We will be delivered -- the Gen2 line will be delivered to Fab-2 in November 2023. I validated that number twice today, and there will be 4 Gen2 lines in Fab-2 by Q4 '24. In other words, that -- right now, we don't know if that's a 4-line site or an 8 or 12-line site, but it will be at least 4. And these things will be coming out one a quarter. By the way, that's the first time we're going to need money because those 3 lines -- 3 new lines will be $150 million. There's a thing called the agility line. It's pretty simple. It's the new faster in Fremont R&D line. It will be downstairs. It uses the Gen2 components. So it looks like Gen2. It can make things quickly, and it will obsolete our R&D line, which is old now. So on this quote selecting the Fab-2 location is a powerful thing. You're absolutely right. And by the way, we can wait until July because that July will not delay money. Okay. This is a picture of the line running, and we are explaining the line running. This is from our PIPE presentation. Shareholder comment, the real problem is execution. By my math, Fab-1 is doing less than 10% of what it should be doing. Absolutely right. I want to explain right now Fab-1 will make a 3D battery every 2 seconds and has 4 lines, meaning 1 every 8 seconds for 2 lines, for example -- excuse me, 8 seconds for 1 line. Okay, what happens? This is -- if you want to ask which slide you showed in the PIPE presentation exemplifies what went wrong, the most here it is. First of all, the 2 seconds went to 4.1 because we only had 2 lines. I'm giving the second half line, it will run -- it will make its capacity. If we run at high OEE and high UPH, it then goes to 22.5 seconds when we lost the automation and the UPH dropped from 550 to 100. And it then went to 72 seconds when the OEE dropped because of the lack of automation and the need to do manual stuff in the yield problem. So what we started out is the battery every 2 seconds, ended up battery every 72 seconds, a battery 1 minute roughly. And that's been the problem, and it's got multiple causes. We'll address those in the plan to fix them in a minute. Investors said you need to articulate the exact changes between Gen1 and Gen2 and why it doesn't require a miracle to deliver a much higher throughput with high yield. You're absolutely right, sir. This is a head. These are anodes, you can tell because there's copper there. The black stuff is silicon. These are stripes to get stacked into a battery. This head is punching them up of the strip where they got made and stacking them. This is -- there's -- this is a stacker head here. In this case, they're putting -- the stacker is putting on the white stuff is the separator piece of plastic. So you stack the battery, anode separator, cathode separator, anode separator, et cetera, 100 high. So that is one head. After you stack it, there it is, and this is this fixture. So when this stack gets moved around the factory, it gets moved in a fixture. I showed you electrode stacking. This is a constrained application. Here's where the stack gets the stainless steel wrapped around it. That is partly the integral part of the battery. And interconnect where -- and in fact, the edges are finished and connected to the leads on the outside. So you can see how the heads one after the other produce the battery. Heads are what make the battery. Gen2 versus Gen1 is about how many heads there are and how they are transported, not redesigning the heads. That is Gen2 is not from scratch redesigned for the Gen1 system. Gen2 is about more heads in parallel, and there is a little bit of redesign, and I'll talk about that in a minute. So there's the fixture and the stack. There is a conveyor belt, and this is how it moves around the factory. So this is a common fixture that panels the battery in the machine, and this is how it moves. By the way, the precision of the belt after what's called a preciser is 100 micron, meaning 0.1 millimeters is so accurate this belt can place something, and that's not quite good enough for a battery. So here is Gen2 versus Gen1, some parameters. Placement, conveyor belt goes to linear motors. Little things that move along and grab on to distancing markers, taking the accuracy from 100 to 20 microns. Gen2 is wider. In the case is 3 wide for the laser 5-wide and Gen2 and up to 12 wide on the baking station, where the bake takes some time, and we need to get through it at speed. Not enough metrology on Gen1, that got fixed on Gen2. Cost on Gen1 was low, Gen2 is higher. The UPH was rated at 550 nameplate. We don't think that machine, if we worked on it forever, would be over 200. And we have 1350 and an obvious question, so is that real? This means the depreciation per unit is higher on Gen1 than on Gen2. And this will be the benefit, but the real benefit is Gen2 is going to work and Gen1 doesn't. Gen1 is a manual system. Gen1 has 45 heads on it, Gen2 has 120. Now here is the key is, are you going to start all over. Only 13 of the 120 heads are completely redesigned. And of those 13 heads, there's only 3 different types of head they're used multiple times. So this is the graph of Gen2 heads and versus Gen1 heads. And here you see the zones. So let's take the first zone, cathode, anode, separator and laminator. So these are -- this is cutting the materials before it goes to the battery. We go from 3 to 5 lasers on Gen2, and we're also changing the laser power to a kilowatt, but it's the same laser from the same vendor with a souped-up engine inside of it. So we think this is not a big change. Yellow indicates a minor change but a change and Red indicates a major redesign. So in this section, Zone 1 and Zone 2 of the machine, these are all the steps. The big one is a bus bar DSR. I don't know that one a slot fill. This is a section where the waves of the battery, the sections of the battery are connected. And that's been redesigned. There was nothing in Gen1. The Gen1 equipment, we didn't know how to do it. We didn't order it. That's why we didn't order the second half of line to. Now we're doing it. And this is obviously a big risk and a big focus. Here's the second half of the line, Zone 3, Zone 4 Zone 5, you can see almost nothing has changed in the second half. So the conclusion is or the request was, you could have a slide that shows all the steps are the same, and that this doesn't require total recalibration. I think this illustrates that. But obviously, this is a risk. It's got to work. Okay. I got a quote now. This is from the book The Right Stuff, which changed my life. And it was about test pilots and eventually the space program. This particular quote is when the Russians beat us to space for the first astronaut. And the relevance of this is, well, Soviet's Chief Designer was what they're worried about. He had to keep smiling -- John Glenn had to keep smiling and awe shucking and play mister modest, just as if it might, in fact, be he who is going in the top of the rocket on May 2. And as the first man in the world at risk mighty shot the space. And then early in the morning of April 12, the fabulous but anonymous building of the integral Chief Designer [indiscernible], struck another as [indiscernible] dramatic flows just 20 days before the first scheduled Mercury [indiscernible] 75 tons [indiscernible] called Vostok 1 in the orbit around the earth through the man on board. The first cosmonaut, a 27-year-old test pilot name Yuri Gagarin, Vostok 1 completed 1 orbit, then brought Gagarin down safely on land near the Soviet Village [indiscernible]. It was as if the Soviet's Chief Designer, that invisible genius, was toying with them. I'm not going to pretend that Line 1 didn't have some component into design. And I felt that, and it wasn't developed right. Then we hired our Chief Designer. When he came into the boardroom, he will remember, I got out my cellphone, and I pulled up a song from 1969, the keywords of which were where were you when we needed you. And I played it for him in the boardroom, the guys were smiling. So I'm going to give you our unnamed Chief Designer because I don't want anybody know who is. That's our guy right there. He's former member Romanian Naval Special Forces, and he is not going to fail. He's a good designer, anonymous. Milestones. This is one thing that will be signed in the plan, all 3 of us. I checked on this thing 4 times today. I think it's right. If we change this from what you have. And by the way, we're going to give you this copy, we will let you know. I haven't got time to go through the milestones, but design of the equipment, placing the purchase -- here's why we can't just say here's the purchase order. 7 purchase orders, factory acceptance test, we go to their plant with the team. Installation, site acceptance test, their team comes to our site to make sure it runs at speed to spec. Line functionality. This is the spec EPR/PCR I told you about before, making sure it works. Then we finally do samples and this engineering sample's 10. Then we have production PCR 3 is production, then we have the qual samples, and then we have production. So these are the numbers of these things. And these are the numbers that happened. So for example, an engineering designer review on the line Gen2, we've got 17 done -- we'll have 17 done at the end of Q2 and 17 at the end of Q3 and so on and so forth. What does that mean? Installation, 16 lines will be installed this -- 16 machines will be installed this year, 18 in the first quarter of next year, that's when it will be done. We're going to have samples. Our first samples 1,000 of them, and it's actually in April, but you have a mistake there. This slide in perfect shape will be in the deck we attach. I want to talk about yield. People are worried about yield. This is a product makeable. This is our unnamed yield manager. He's pretty good. I looked at this weekly yield review frequently. This is what one page looks like stacking. I showed you the stacking module. Well, there's yield by week, there's the number of failed units by week, and then there's a Pareto of code and cause of the lost units in the last 7 days. This is a close-up of the Pareto. So what this team of engineers does is they work on the big bars and they beat on it. 10 Pareto graphs. This is 1 of 10, 10 teams of about 8 people each cross-functional engineers, mechanical engineers, battery experts on each team. And we got these guys beating on 10 Pareto. So the overall yield for this in this report, there's 10 yield panels. You can see some of the yields are consistently high. You can see some. This is the one we dug our way out on the integration. You can see which ones they have high risk. They're worried about these 2, medium risk, low risk. Here's their learning curve. This is extremely important. Up here, the yield is 0, the failures are 100%. You always graph defects in a yield curve, 40% yield and 100% yield. Here's the yield. These are actual weekly data points. You can see for 4 months, we're shut out. We couldn't get the sucker to run. Then we finally got it turned on, and we started improving at the rate of 3.1 percentage points per week. Once you get the engine running -- this is classic, then you start learning faster, and that was 11 percentage points per week. In the future -- this curve is well known in silicon. It's the S-curve, and it will flatten out as you start having fewer and fewer defects to work on. This is a good yield effort. This is a silicon yield effort. This is the effort would typify any top silicon semiconductor company. Our yield team is very confident in making good progress. That's the only point I want to leave with you. Okay. I'm talking about requirements for safety and accelerated testing. This is the specification. That's this number and revision, and I just want to make one point. When our return rate is 0 out of 8,812 so far. By the way, I got notified today, the level of honesty here is great. We have a letter from 1 customer about 1 unit and they say they have 1 unit that has got -- its swelling, okay? So it's still 0. We haven't gotten that. It's a return, we probably will. Just to be honest with you. Okay. This is spec with the Section 513. I'm trying to illustrate what a spec looks like inside of this company. So we do -- this is electrical testing, high temperature, overcharged, drop, pinch press impact, nail pen, you see my picture on the nail pen. Here's the number of cells our spec says we need. We need 600 units. And this is not the only expect, this is accelerated lifetime. We also have accelerated lifetime margin where you do all this to extreme. We have United Nations 383, which is required to get in an airplane and these 40 units for that. We have UL. We have IEC, which is European equivalent of UL. And most countries have set of specs. So the point is every time we change the battery, this is what our requirement is for what we have to do and do testing. This is why it takes so many engineers in the battery world. I'd like now to talk about sales a little bit. You guys know Ralph, he's been here for over a year. Comes out of Rutgers BS EE. He just -- He joined us 2 years ago or last year, really. After -- he was the turnaround CEO for 16 years, was with various companies. Before that, he was at Cypress. He was the EVP of Sales, Marketing Business at Cypress. So I know him quite well, especially as new market development and customer acquisition. I brought Ralph here in case I get asked a detailed question about a customer, I can't answer. I'm into this, you'll see to the level I'm into it. But I wanted him here. Ralph and I created some new customer funnel metrics that we're going to share with customers for the first time. Our shareholders say design wins translating the customer purchase contracts with the useful value drivers, which give investors a better line of sight on revenue going forward. You're right. So that's what we're going to do right now. So this is the funnel that we eventually fill in this graph. The milestones in the funnel are ES10, engineering samples. We stand behind them. They work, they'll meet the data sheet. Custom samples, we made your battery to your specs, so it's your size, you maybe use some component you want. So these are the beginning points. You start here with the standard battery or here with the custom battery. You then go to production cell qual. Qual samples 100. So now instead of 1s or 2s of these, you're dealing with 100 to a 1,000. By the way, 3 to 9 months, 6 to 9 months, 4 to 6 months, here is the duration of each of these. Then you move on to product integration where they buy 1,000 cells because they're going to make 1,000 watches or cell phones or whatever. And that takes months to do because they got to do their drop, kick, pinch, crush test as well. Then they finally buy preproduction and 10,000 units, this is a hefty number, but these guys are in consumer electronics. And they consume that much. Preproduction units, and this is when they start shipping to customers. And then finally, this is the first $1 million. So these are the milestones in our funnel that describe where customers are. Now I'm going to tell you some of our customers to an 80% approximation, we're not allowed to use their name, but I'm going to tell you some of them and where they are in the funnel. This is the funnel as of the beginning of last year and the year before last, actually now. 43 counts had been a sample from the pilot line. Most of them were doing ES10, and several of them were customer's -- custom samples. Now what is the key? Take this guy right here, it's S14, what does that mean? S means the strategic account S star means a mega cap strategic account, a key account -- a strategic is top 3 in its business, the key is top 10 in this business. A lead first application in a new area of ventures. So these are our keys for what type of customer. So S Star is a mega cap customer in top 3. The color signifies where they are. In this case, it's wearable. We also have colors. You can see them over here from mobile phone, laptop and other. So we have all of these customers, 43 of them. And that's where we were a little bit over a year ago, like a year and 3 weeks ago. By the way, this customer is Samsung. We thank Samsung. I appreciate the fact they let us put out a press release, and you can see them there right there, and they were one of our early customers. Okay. Other customers. This slide will not be in the deck we hang on, but today, Light on Milwaukee, Canon, Panasonic, Sonos, Casio, Nintendo, Samsung, United States Army, Braun Genius and Oppo. Genius is a watch company. And Oppo is a cell phone company in China. So these are companies for which we do not have an NDO. And we just let you know that these names are real. And when you see a high number like 49, that means that's number 49. Okay. Now what had changed, December '21 moving forward to December '22. Fab-1 enabled the progression to go to qualification samples. This is where you qualify the fab, not just the technology, 1,000 samples than 10,000 samples. We moved up to 78 accounts, and here's what the map looks like now. We've now got 1 account, [ LO5 ] that's out of 10,000 units. Here's our plan for 2023. So you start out where we are today. And the question is, what will it look like at the end of this year. So this is our plan. And you can see it shifted some. We've got more people coming in. We moved through the funnel and [ LO5 ] is our plan to go to first $1 million. That's going to be our biggest customer. The way this works is this gray arrow says salesman number 1 in the United States is responsible for keeping track of this customer on the customer side and watching this movement. Salesman number 1, light gray. Also as these other actions he's got to achieve, and these are part of his plan. His -- what we call critical success factors. Salesmen number 2 is Asia and the United States. There's his plan. And salesman number 3 is Asia-only and this is his plan. So this graph is kind of messy, but it gives you down to the customer name and the customer milestone, and the change in the customer milestone to center sales plan this year. Ralph has done a good job organizing sales, and we spent so much time talking about other things. We don't really know it. I'd like to thank one of our investors, Greg Reyes, who sent a letter 9 months ago and said you ought to use codes like this. And we did it, Ralph and I did it. So this now is the Reyes format, if you want to call it that, for sales. So deal 1 has taken 3,000 cells, 1,600, 1,100 people have taken 5 cells. The number of customer cells added up to 8,812, and here's what we ship by quarter. So last quarter, it was 4,442. And next quarter, we forecasted 9, which is doubling. Now you can say, well, those are small numbers, but 9 doubled is 18 doubled is 36, doubled to 72, doubled 144. So that's the curve about as deep as any company can do. If you put the data I just gave you into ordinary funnel statistics, we have a $13 million TAM by 2025. ES10 engagements and the other engagements further down the pipe are 750 and 669, they're equally divided. These 2 added together $1.42 billion. So we've touched, dealt with, have connections to about 11% of our TAM. So our sales effort is working well, and they really badly need those 180,000 batteries to come out of Fab-1. And Fab-1 needs to deliver because Fab-2 doesn't exist yet. It's that's simple. So here's the new CEO. His name is Raj Talluri. He will be here on the 18th, and I will gladly go back to being a Director. Raj's got a Ph.D. in Electrical Engineering from UT Austin. He worked at Micron for 4 years, Senior Vice President and General Manager of the Mobile Business Unit, that is taking Micron's standard DRAMs and flash memories and customizing them for mobile cell phones and wearables to get better ASP and better customer lock in, that's a $6 billion division. He did the same kind of job of Qualcomm on their IoT line and the CDMA line before that. And before that, he worked at TI for a bunch of years, doing the product lines, OMAP DSP processor, their wireless product line, imaging, audio, digital still cameras and came up through the technical ranks. I said before, it's a resume that glows in the dark. He specializes in new products, business unit management and business processes to achieve the above. I'd like to introduce Raj. He's been here. This is the second time he's been in the building. So don't ask him too many questions.

Thank you very much, T. J. And really my pleasure to be here and super excited to be joining the Enovix team on 18th. And as T.J. mentioned, I have 30 years in the industry. I worked on many, many different products from concepts to early stages, to ramping millions of units a month. And I understand what it takes, the discipline, the structure, the processes to go from early samples to high-volume production, great quality with no returns. I'm super excited to take this technology with -- partnering with Ajay to the next level and ship millions of units, and our great customer relationship with almost all the cell phone and also the consumer electronics companies over the past 30 years that I've built. And it's going to be a lot of fun to build this. And one thing I'll say why I'm super excited by the batteries is in this portable electronics and even cell phones and PCs and so on, if you look at the last, I don't know, a decade or 2 that I have been associated with them, the processors, the memory and almost every semiconductor component has grown leaps and bounds in terms of the performance, in terms of clock speed, in terms of user experience, but the batteries haven't kept up. Now if the battery actually kept up at that rate, you can imagine what the user experience of these products would be. Even now in many of these products, the process, the memories throttle the performance because they don't have enough battery capacity. So I feel like building great batteries like we are about to at Enovix will really not only create great value and business for analyst, but I think it will also do a phenomenal job of great user experience for all the people who buy these devices. So thank you very much. Super excited to start here soon.

Okay. Last slide -- second last slide. Fab-1 is finally working 8,812 units shipped, yields at 40% and rising. We got a great new COO, Ajay. We shipped 180,000 units in 2023. Gen2 will be Board approved on that date, come hell or high water. It's faster in automation than Gen1. It will be installed in a Fab-2, will be in Southeast Asia where we plan to put 4 lines quarterly in '24. And we'll have samples on 4/15/24. So here, I got the date down to a day because these days are too important to talk about quarters. We have a stellar new CEO, will refine our strategy, install R&D processes and instill a P&L mentality and incorporation. And we plan on winning folks.

We'll now begin the Q&A session. Please note that this call is being recorded. [Operator Instructions]. Our first question comes from Bill Peterson from JPMorgan.

T. J. Nice to see in your packers green and yellow there. You brought back Ajay as -- CEO back in November, the new CEO, obviously, last week, you announced -- nice to see Raj there. I guess what are the areas you see as an important area of focus and scale production? Any particular areas you see you need to bolster from here? I guess what are the resources you have from your past experiences in areas like Cypress or prior ventures that you could bring on board or consult with?

Yes. So if I can repeat the -- real quickly the question. With me on board as the COO and Raj on board as the CEO. The question really was, who else are we? Or what is the -- what are some of the other team members who would come from T.J.'s prior experience or mine? Actually, we -- definitely we are going to assemble a team. We're going to continuously look for the talent that we can trust and who we have worked with in the past, who have been in similar ramps. As I mentioned, I have a lot of experience ramping vertically straight up. Especially the last 10 years at Lumileds, we were ramping for a cellphone company, not too far away from here and the ramps, as you know, are pretty crazy. And in there, we have a talented group of people, who helped actually do that. So yes, definitely, I'm going to bring more people as we go along here in terms of talent. So Raj, you want to add something?

Yes. I mean my -- again, I'm looking forward to starting here. And once I start, I think I'll understand what else is needed. And clearly, 30 years spanning many, many -- TI, Qualcomm, Micron, been in the industry for a long time. I do know a lot of people. But it just depends upon the gaps, depends upon what we need, what we have here. And maybe at the next time we have this call, I'll have a better answer.

If I can sneak one more and really that was also kind of a question for T.J. as he sees [indiscernible]. But the next question I have is, I think when you looked at the time line you put forth, it looks like there's now another maybe 1 or 2 quarter delay versus at least maybe our prior expectations. We kind of thought that the tools are going to be arriving, I think, towards the end of next year, maybe some early revenues in early '24. I just want to make sure if that's the case. Is that a delay? And if so, what is the sort of nature of the 1- to 2-quarter delay as you see it today versus maybe a quarter ago when you mentioned it?

The primary difference is the new unnamed designer. The fact that he's checking every single module, the fact that he's got to run at 1,350 UPH and frankly, a more careful scheduling process. I called the designer himself 4 times in the last 2 days. I called Ajay 6 times in the last 2 days, and all of the calls were tell me that this number is right. Tell me why I should believe that number. So nobody can ever promise that a plan is going to happen, but I can tell you this is a carefully done plan, and we're behind it. And why the old plan was what it was? I don't know. I approved it, somebody presented a plan. I was in the Board meeting and I approved it. So I have my fingerprints on it. Now I'm giving you my plan, that's the best I can give as Executive Chairman and with personal work into it. And yes, there's some...

Our next question comes from Gabe Daoud from Cowen.

Just maybe following up, T.J. on Fab-2, expecting 4 lines to be there by Q4 '24. And you kind of noted the first line to get ramped up may take about 50 weeks or so. So just curious what kind of incremental improvement can we expect to get the additional lines ramped up to full capacity? What -- does it go from 50 weeks to 30 weeks? Just how do we think about that timing and improvement?

Okay. Let me have Ajay answer that one because he'll be fully in charge of that at that time.

Yes. So as we alluded earlier, actually, there's an EPR/PCR process, which is the equipment as well as process certification process that we go through, making sure every process capability has a value of more than 1.3. All that strict discipline of following the process will let us learn very quickly on the Gen2 line 1. And you can imagine the 50 weeks that T.J. talked about for the first line of that in at a high UPH 1,350 high availability, that will shrink rapidly from Line 2 onwards. So the schedule we have put in here is our best estimate from that learning what we could do from Line 2 to 4 as we see it today.

Let me make one other comment and that is we've already got a down payment on that yield curve since the heads in the lines are highly similar. Errors you have in placement or some other error head related. We've taken our yield from 0. We suffered through 4 months of 0 yield. We're now at 42%. By the end of this year, we'll be at 60%. I expect Line 2 to turn on very near 60%. It may have a few weeks below that. But that line is not going to start at 0 and work its way up. That line is going to start at a significant yield. And at 1,350 UPH is going to crank volume even if the deals are uneconomic in the very beginning, it's going to be able to crank volume.

Got it. That's helpful. And then maybe just going back to Fab-1, you'd mentioned the units out of there for 2023 and then the second line ultimately will become obsolete. But just -- I guess just curious, though, in terms of wearables, what will the capacity be out of Fab-1 ultimately? And then as far as just EV cells and qualifying those, would that be made on the auto line? Just also trying to figure out where that fits into the mix?

Yes, I'll take that. So the total Fab-1 output as we are expecting, as it ramps up after a certain point, I think T.J. showed the S curve, we're the learning kind of plateaus and we kind of sustain at that point. It will basically take us right around 200,000 cells a year, 200,000 to 250,000 somewhere in there. And those are all wearable cells, small cells, as we call it. And all the larger cells, the laptop or the cell phone cells will be mostly all done on the Gen2 line, which will be getting installed towards the end of '23, beginning of '24.

And then yes, just curious, the EV cells, the [indiscernible] cells that you're making, I guess, are those -- is that in Fab-2? Or will that be on the Agility line at Fab-1?

Was he talking about EV? What batteries were you talking about?

The EV cells that you're sending to customers?

Okay. So we didn't talk about EV today. Those cells are made in the R&D line here. The technology for making EV cells, the methodology is different. So we will be in the sampling cooperative mode on EV. We have a separate division on EV. It's small, but it's quite effective and gaining traction. And we can't really afford right now a lot more than that. But that will be the topic of a different meeting what's happening with EV. I already went an hour today. And if I had bragged about our EV stuff, it would have gone even further. But yes, we're still doing it. 5-person team will cooperate with partners working on doing that right now. This is about where Enovix was in electronics batteries 2.5 years ago on the EV side.

Our next question comes from Colin Rusch from Oppenheimer.

Can you hear me?

Yes.

Great. You talked a lot about corporate culture and accountability here and bringing in some new management is an important step towards that. But can you talk a little bit about your expectation for the transformation of the organizational culture and how long that's going to take?

We'll have the new guy do that, because he's been here exactly 2 times for 3 hours each.

No. I mean I think my experience as I move from different companies, the culture is different in each company. But I feel like what I've learned over the years is that transformations can happen pretty quickly. I mean, the key thing is to understand what's working, what's not working, put together the right processes, the right discipline and the right structure and the right people in place. I think when a company moves from a stage of making early prototype sampling to high-volume production, it's been done many, many times. I mean, it's not new, and we do it all the time. but it's just a change process. And really, it's the structure, the discipline and right people in the right roles. So I expect to get it done pretty quickly, but I'll have a much better answer after I start, but I'm not worried about it.

Let me add a little bit to that actually, just a little color, actually. So after 49 days I'm a lot more senior than the CEO. But I will say this that the culture really starts with the management team and how we are leading by example, right? And the accountability, transparency urgency, which I think T.J. talked about a little bit. We are moving, we are transforming the company, obviously, from a research development, small, very small volume, fewer customers being samples, et cetera, 2, what you saw today. We are talking about big numbers, even all the way to 10,000 samples per customer, important customers, you saw the customer list. And the culture will begin with us with the management team, right? And I've changed cultures. I've done a lot of that in the 38 years. And -- but wherever we have the management team leading by example, it always ends in the right culture.

Okay. And then you talked a bit about the capital need for Fab-2 and how much these lines are going to cost. And certainly, I'm sure you've thought about where that capital is coming from, certainly, the customers are concerned about that and potentially can put some money out to help that process along. But can you just give us an update in terms of the current thinking around the financing plan between now and the end of 2024 to get those lines up and running to the point where we'll see some operating cash flow?

Okay. Let me talk about that one. I appreciate the way the question was asked between now and 2024. We've got all the money we need to get through 2023. If we want to get a line per quarter in 2024, one is we're going to have a little bit of a staircase a building effect where we -- line 1 will start creating cash, and that will help with Line 2. So we won't need to -- and in fact, get all of the money upfront in order to buy those lines. Having said that, we will need to raise money. It will be something around the fourth quarter of 2023. And if we are raising money, it will be because we need machines. If we need machines it's because their batteries are [indiscernible], and we need to make more of them. So I don't anticipate that being a problem. Right now, we don't need money. We like people to follow the company, and we'll give an opportunity to invest.

Our next question comes from Ananda Baruah from Loop Capital Markets.

I guess the question is with all that's occurred and the changes and sort of the scrutiny you're bringing to the Gen2, has there any been -- been -- and the changes to Gen1, any impact to the strategic account production qualification process that we should be aware of?

Very good question. We've been progressing our strategic accounts along pretty much as planned because most of the volume that they've been expecting is relatively low at this point. And -- but what was really -- has been accelerating is actually the product out of the production line out of Fab-1 has been very high quality and very good results in the qualifications that we've been driving with those. So we feel like we're right on schedule with those major accounts, strategic accounts.

That's great. Ralph. And just maybe as a quick follow-on. Do you also then anticipate, Ralph, that you have an opportunity to ramp to what you had anticipated production volumes might be, say, whatever your expectation was 4 months ago for production volumes for big strategic accounts, whenever they use were it to start to ramp? Do you still envision being able to hit similar volume ramps? Or is that -- has that changed as a result of Gen1?