Enovix Corporation (ENVX) Earnings Call Transcript & Summary

Good morning, and welcome to JPMorgan's Industrial Conference. My name is Bill Peterson. I cover Cleantech stocks here at the firm. Really pleased to have Enovix here. And Raj Talluri, the new CEO, will walk us through a presentation, then we'll move to Q&A. So Raj, thanks for coming. And we have -- in the audience, we have Charlie and Ralph from the team as well. So thanks for supporting our conference. Raj, over to you to present the company.

Absolutely. Thank you very much, Bill. And thank you all for joining this presentation, and thank you all for the people on the webcast. So it's my great honor and great pleasure to give you guys an overview of this amazing company called Enovix, which I've been the CEO now for about close to 2 months. And before I delve into it, do want to draw your attention to the disclaimers and safe harbor statement. We will be making some forward-looking statements here based on what we know here. But please look at our website and all the disclaimers there for any information that I'm going to present here. Okay. On the -- getting on to the company itself, what is Enovix? Enovix is a company that makes batteries. It makes lithium-ion batteries. And it's a truly differentiated technology in lithium-ion batteries, and is differentiated in a few different ways. If you think of lithium-ion batteries, there -- you have them in your laptops, in your smartphones, in your wearable devices, IoT devices, automobiles, computers, everywhere. Any portable electronics device and the EV electric vehicles have lithium-ion batteries. But it's a technology that since it was invented in the '90s from Sony, hasn't really made a lot of progress in terms of energy density. I mean it's typically grown 4% to 5% a year. Compare that with, I don't know, the speed of your processor in your mobile phone or how fast all the consumer electronics devices around you change and the memories change, it's been very, very anemic in growth. And that has kind of caused a lot of problem -- or at least it has not allowed all these devices to really fully recognize their potential. I mean I'll give you a simple example. A lot of you were smartwatches that kind of do a lot of interesting things for you, and then they talk about the fact that you can measure your sleep and so on. But the problem is you have to charge them in the night. So it's kind of hard to measure your sleep when you're charging them in the night. So there is a big secret of this many consumer electronic devices that you buy that you're not getting the full benefit of what they are supposed to give you for what you already paid for because of the battery. So that's a problem that Enovix started attacking to solve. The company has been there for 16 years, and here's what they tried to -- what they did is to invent basically a silicon anode. Batteries have an anode and a cathode, an electrolyte in the middle. And is they are actually very simple devices. When you charge the lithium actually accumulates on one side, and when you discharge it most to the other side. So the amount of lithium that you can put on the anode is what basically is proportional to how much charge or how much capacity energy density that battery has. So the more lithium you can put in, the higher the energy density. The silicon -- these batteries, lithium-ion batteries for a long time have been made using graphite anodes. And graphite can only hold so much charge, so much lithium. So that's why the advances have been very slow because nobody has been able to replace graphite with any other material that can actually hold a lot more lithium. It's been long known in literature that silicon can hold a lot more lithium than graphite. But the problem with silicon is that it will hold more lithium and you get more charge, but it swells up. It's swells up almost to the point if you put a silicon-based battery inside your smartphone and you charge it, it will swell up to the point where it will pop the back of the battery off. It exerts that much force. So that is a problem that hasn't been solved for a long time. And Enovix has a very unique way of solving that problem, which I'm going to talk to you about here. That gives you a step change increase in battery capacity. And the other thing you have to remember is that as you put more energy density in these batteries, there is a problem with safety. Because if you poke the battery with a nail or some sharp object, you'll short the electrodes. And when you short them, the current just goes through it fast. And then the more charge you have, the heart of these things get to almost the point where it gets to a thermal runaway and it just burst into flames. So there's a real safety hazard of putting more and more charge into these batteries. So Enovix also has a very -- because of the architecture, a fundamental technology called BrakeFlow, which I'll explain in a minute and show you some videos, that actually stops this from happening or at least mitigate the risk very significantly. So that's the great advantage we have. Now as we -- let me click back on this. As we've been on this journey, we've now started sampling these batteries, and we have given some of these batteries to our customers. And as we started producing more and more batteries, started giving it to our customers, the -- kind of the reception from the customers has been fantastic. I mean like even yesterday, I was up in New York. I visited a company that was using our batteries. And they told me and asked them how -- as a new CEO, I asked them, "Hey, how is our product? How does the product compare to the products you have in your current products?" And the comment I got was, it has 50% higher energy density than what we have with the traditional batteries. I mean it's pretty impressive, and they can't wait for us to produce it in high volume. Because it's not that easy to make these complex batteries in high volume. And I'll talk a little bit about the challenges and how we are working on overcoming them. And because of that, we were able to give these batteries to our customers. And here, I show you the customer momentum. In last -- in Q4 of '21, we had 43 customers that are kind of taking our batteries and qualifying them and giving us feedback on how they work. And in Q4 '22, that went up to like 78 customers that we have, so steady progress from there. And I'll talk about what that amounts to in terms of potential revenue. If we actually look at these customers, what products they make and the price of the battery that we get for it -- for each of those batteries and you multiply it by the number of potential units that they could use it in. In Q4, we had over close to $670 million of revenue in active design wins, so which will be realized in out years, like '25, '26, but the funnel starts with them taking our batteries and qualifying them. So really exciting technology that's real, and we are sampling to customers now. It's taken a long time, taken almost 16 years to get to this stage. And I'm fortunate to get the job to actually take it to scale. And taking to scale and launching in high volume needs a lot of different kinds of skill sets. My background is actually all in semiconductors. I've been in semis for 30 years. I was the -- most recently, I was the Senior Vice President at Micron. We were shipping DRAMs and NANDs into mobile phones. It was a $7 billion P&L in 2022 that I was running, maybe 20% to 25% of the company, $2 billion operating profit. Before that, I was at Micron -- I was at Qualcomm for 15 years -- 10 years running their Snapdragon processor, which many of you who have Android phones will know it's there. And I spent 16 years before that at TI also in semiconductors. So I'm very familiar with taking products to high-volume production in these kind of markets. So here, you see what our -- we have 2 factories. We have a factory called -- which is a Gen1 design factory, which is in Fremont. And we are now in the middle of building the second factory in Malaysia, we have announced that, where we'll build the scale. Our factory in Gen1 is actually a very small factory. It -- more of a proof of concept, I would say, as it turned out to be, although it had higher aspirations to be much bigger. It produces about 100 units per hour. Our Gen2 design will produce 1,350 units per hour. So really scaling fast over 10x here. And we've gotten people from Micron, from Qualcomm, and people on our Board from Tesla and Cypress and people from AMD. A lot of people very experienced in ramping high volume production are now on the team. So it's super exciting time for the company. I want to talk a little bit about the market opportunity. The market opportunity is actually tremendous for this technology. I'd like to maybe broadly classify the market into 3 segments, 3 to 4 segments. One segment of the market is what I broadly call the Internet of Things, and that is a division I used to run at Qualcomm for about 3 years. It's a market where there are a lot of different products, wearables -- from wearables to all the things you use at your home, it could be smart speakers, it could be portable speakers, could be headsets, things like that. Could be medical devices like glucose-monitoring devices. Could be industrial IoT, which are devices like UPS comes to your house, deliver a pack and you sign on that thing. That's actually an industrial IoT device. And there are so many products like that. If you just maybe after this talk, you'll start noticing all the products that use lithium-ion batteries that are just around you or even just in your daily life. That's a 20 -- that's an $8 billion TAM in 2026 for batteries. And what we find is that our battery has anywhere between 25% to 120% capacity advantage based on the size of the battery and the product it is. Like I mentioned, the customer we visited yesterday was able to realize a 50% benefit in energy density. Now if you look at mobile, that's a huge TAM, actually $11 billion TAM in '26, between 1,200 million to 1,300 million smartphones sold in the world, and every one of them has a lithium-ion battery. There, we get anywhere between 32% to 100% capacity advantage based on what the previous generation graphite battery they're using. So really a differentiated product there. And the third one is computing devices, like the laptops I see all of you using here. That's a $4 billion TAM, and 26% to 40% capacity advantage because those take more of these batteries from us that go into cell phone, but bigger form factor or multiple ones stacked next to each other. So the market opportunity is huge, and we are just getting started. Now the other big market opportunity is EV. EVs, as you know, are a huge market opportunity for many, many people. We all know about by 2030, how many electric cars will be there. And they only keep getting more and more because places like California have already said cars that come out after 2030 have to be electric and so on. Our battery has huge advantage in EV. And the advantage it has is because of the architecture, which I'll describe in a minute, it actually has a 10x improvement in internal temperature gradient. So one of the big problems in EV is the battery actually gets very hot when you charge it. So our battery actually will be that it doesn't get that hot. And also it charges much faster, 80% charge in 5.2 minutes. We've demonstrated that. Much higher number of cycles, retaining the capacity. So the cycles basically is how many times you charge and discharge a battery. So here, we are saying you can charge it up to 1,500 times and it still retains 88% of the capacity. And we also have a calendar life that's much higher, almost 10 years, based on high temp testing. So it's a really, really differentiated battery. We are now working with the people in the industry, in the automobile companies to actually focus on taking our battery and getting it into their cars, and figuring out how to get it to production, either licensing or manufacturing and so on. This is a huge market. This is a $523 billion EV market TAM. So you can see it's a huge market opportunity for these batteries. Now it will take a little longer to get into cars, but we will get into -- we will be launching in IoT and smartphones and computers first, and then into cars. So this slide, it just shows you visually where we are -- how we are doing, combining 2 things I mentioned, which is our customer traction, and then combining that with the TAM. So you can see if you take the $23 billion mobile computing TAM, we are engaged now in $754 million of it. And if you look at our active designs and -- active design wins, the customer has taken our battery, tested it. They felt it was pretty good. And now they're putting it in a product and then working on taking it to production, almost $1.4 billion revenue, but that's only 6% of the TAM. So very exciting that there's a lot of market opportunity with even a small TAM that we are addressing right now. What I want to talk here is about the -- the question that gets asked, okay, so if you can do that, if silicon can store 2x the lithium-ion -- lithium in the silicon anode, how does it compare with competition? There are other companies that actually do talk about making silicon anode batteries. But what we have seen in terms of competition, which, again, validated by our customers, I asked the customers yesterday. I said, "Hey, have you guys seen other silicon batteries that we need to compete with?" It seems like there isn't really anything shipping today at that density. What most of our other competition has done is put a small percent of silicon, 3% to 7%, and then try to get the energy density up. But ours is 100% active silicon content. Our entire anode is 100% active silicon. That gives us a huge advantage in energy density. So we're basically replacing the graphite with high-performance silicon. Now the question now gets asked, how do we do that? What is so special about us that we can replace that. So conventionally, the way the lithium-ion batteries are made is by what is called as a warm lithium-ion coil. So basically, you have a graphite anode and cathode and a separator between them and then electrolyte in between them. And you just roll the thing like a jelly roll, and that's what it looks like as you see in the picture below. The problem with that is if you just replace the graphite there with silicon, you'll get a roll like that, but the silicon expands, so the roll just pushes out and pushes the back out of anything you constrain it. It's actually pretty amazing. It -- the silicon when it expands, it produces almost 2 tons of PSI, pressure per square inch. It's pretty amazing how much pressure it produces. So there's just no way to contain the guy. You just can't hold it down. So what the team at Enovix has figured out is instead of doing that, why don't we cut silicon into thin strips and the cathode material also into thin strips and make really small batteries. What you see there, those vertical lines are all each a battery. And we stack hundreds of them like that. And now what happens is -- and you put a mechanical constraint, which is like a steel cage around it. Now what happens is when silicon expands, it's pushing to the sides of the battery, not the top of the battery. Now here, you can see it's pushing to the thinner side. But it pushes the thinner side, suddenly the 2 tons comes down to like 200 -- instead of 2 tons, 200 pounds. So now we're able to constrain with mechanical constraint. And that is a very innovative patented technology that helps us make these batteries. No one has done this, and we are the first ones to do this. We have a lot of patents covering this technology. And now we have moved the complexity from making a battery into mechanical engineering problem. So we have these machines that actually make these batteries. Cut the -- we cut these anodes and cathodes with laser and stack them together. And I'll show you a couple of videos on how they get made. Now I want to talk to you a little bit about this breakthrough technology. Here, what you're going to see on the left side is the conventional graphite battery, on the left side -- on the right side is our battery. We have this technology because of the way we produce these batteries, we are able to put series resistors in the front of each of these batteries and connect them. And then what happens is when a battery gets shorted by poking with a hard -- with a nail or it falls and something rolls over it and whatnot. When the electrodes get shorted, the current limiting resistors we've put in series across the electrodes stops the battery from getting too much current in one place and just blowing up. Here, you'll actually see what happens if you don't do that. On the left side, you see what is called a nail pen test. We take a nail and poke it through a graphite battery. On the right side, you'll see us take a nail and poke it through our battery, and you see what happens. It's actually pretty scary. That is actually what happens to the conventional graphite batteries if you poke them with a nail. In 0.13 seconds, it goes to 283 degree Centigrade. And then at that point, it just melts ceramic. It's actually really, really dangerous to put that much energy in a battery. On the right side, you can see our stuff doesn't go past 74 because the limiting resistors stop it. And this video is on our website, and you can actually see doing this. That is TJ Rodgers, by the way, who is the Chairman of the company. So what is our strategy to scale? Our strategy to scale is to basically -- we have a factory in Fremont in '23, but we're really building our highly automated factory in the Southeast Asia, in Malaysia. We're just producing like 180,000 cells today in -- by the end of this year in Fremont and sampling our customers, but the high volume will be in Malaysia. And the first line we're building will have almost between 9 million to 18 million cells, depending on whether we make a small cell or a big cell. And then we will build more lines, which will be copy exact from the same line that we built. One thing I want to say is the factories that we built, as we make more advances in energy density by getting different materials, different cathodes, different anodes, the same factory will be able to use that. Because our factory makes the batteries using these mechanical constraints that I talked about, and it's kind of agnostic of the material. So the battery materials we find, we can put them in the same factory. So we will get generational increase in energy density and cycles but the same equipment can be reused. So that's actually very advantageous for us. And I want to show you our Gen1 versus Gen2. Gen1 is slow right now because it is more prototype kind of capability. And you'll see here our Gen1 doing the stacking, where we cut this little strips of battery material and stack them into this battery, and that's what you see on the left side here. On the right side, you'll see our Gen2 stacking. And what you'll see here is the speed of operation of the Gen2. You can see we are stacking now 6 of them at a time. On the left side, you see the stacking of the Gen1, which goes click, click, like that, right? So we are going from 100 units per hour to 1,350 units per hour, and we can just copy these lines and produce in millions. And we also use much higher power lasers. So our cut speed is much higher, and we have much higher [indiscernible] and increased automation. So super exciting to see these machines come online. Now one of the -- people asked me many times, you're a chip guy, and Ajay, my COO, is a chip guy and a lot of us come from semiconductor industry. And I wanted to -- and people ask me, "Hey, you are producing at 100 UPH. Why do you think you can get to 1,300 UPH? How do you think that you can make Gen2 scale that much?" And I wanted to put this slide together to show to people that the complexity of producing these batteries is all in the mechanical constraints we create because we got electrochemistry work pretty well. I mean, 16 years we've been doing this. So we got that part nailed. Now we need to scale in manufacturing. And the manufacturing scale, if you look at the tolerances to which these machines have to build these products. So on the right side, you see the stacking of, what, different electrodes and how we package them into a battery. The assembly tolerances are in between 25 to 60 micrometers based on the size of the battery. But if you look at the kind of tolerances that we've dealt with in semiconductor industry, they're 1 to 3 micrometers. So this is a problem that's been leaked long back in semiconductor industry, and we've done this many, many times. And now our job is to make sure that we use the best known techniques in semiconductor industry manufacturing to take it to the battery technology. And that's what we are doing. These machines that are built in Gen2 are being built by people who have experience building semiconductor back end test, and the people who are running the company now actually have a lot of experience in ramping this. So we feel pretty good that we can get this to high volume pretty soon. Here shows you a scorecard. Our Fab-1, we had a milestone that we were going to hit Q4 '22. We made 4,000 batteries. And in Q1, we hit 9,000 batteries, and we're going to more than double that every quarter, and we committed that we'll make 180,000 batteries by end of this year. Our Gen2 line, we got approved from the Board to actually make the line on 15th of March was the date, but we actually got it approved by 9th, and we are very confident on the design, and ahead of schedule. And we mentioned in January that we're going to get approval for the Southeast Asia location by July. We actually did that ahead of schedule in March. So we now have chosen the location, and it's going to be Malaysia. And we'll get a line that can make custom-sized batteries, called the agility line, installed in Fremont end of this year, which is a piece of our manufacturing line that will go into Malaysia, but it'll have the ability to customize the shape of the cell. Because that is another key important thing in this market is watches use a different size cell from phones versus computers and so on. So we should be able to customize the size of the cell. Now the electrochemistry remains the same, just the mechanical constraints and laser-cutting changes. So the new machines we're designing actually have the ability. We can program it to make different size cells. And we -- our line will be able to do that. We'll build a piece of that line in Fremont first, then our main line in Malaysia will start in April next year with that capability. If you look at the team, we have a tremendous set of people there with a lot of experience. Ajay, the COO. He was basically the Chief Operating Officer of Lumileds. He ran all the factories in Malaysia for Lumileds. Before that, he was at AMD. 38 years in the industry. I've spent about 30 years in the industry. And Steffen, the CFO, has been with us for a while, varied experiences. Murali has actually been with the company for 16 years. He was one of the founders and kind of inventors of this technology. And Ralph, who is in the audience here, a ton of experience running public companies and also with Cypress as the Head of Sales there. So very proud of the team, very strong set of people and super excited about the technology. So that's actually my last slide. I want to thank you all for the opportunity, and we'll take some questions.

Okay. Great. Thanks for that overview. Just I want to kind of start on that last point. So in many ways, you and Ajay and Ralph, obviously, more prominent faces of the organization. And I think you announced some further leadership additions this week. At this stage, how do you -- the new additions, what are they working on? And I guess, how would you characterize the team at this point? Any other sort of holes to fill? Or how is it looking?

Yes. I think I feel now that we have all the key people, the key leadership team rounded out for this next phase of the journey of Enovix in terms of manufacturing to scale. The 3 people we brought on board, we made a press release recently. We brought in a person who will report to me. Samira -- her name is Samira. She worked with me at Qualcomm. She will be responsible for the product management and product execution. Because this company, as it transitions from a technology company to a high-volume manufacturer customer-focused company, we need to make products that are more tailored towards each of the customers. And we have lots of inbound interest. So we need to choose which ones we make first and which ones later. So just the discipline of that hard-nosed P&L and product management is the key. And the other 2 -- other hire is actually the Head of Sourcing. We source a lot of raw materials, and the raw materials are actually over 60% of the cost of the battery. So we need a very senior person to do the sourcing part. And we are buying these machines, which are fairly expensive. And we need to make sure that those are done right. So the person we hired there actually used to run the manufacturing and supply chain and purchasing at Lam Research. And we hired a strong finance person to actually help with the financials of the company as we scale. So I feel like we got all the right people now.

Great. And I also offer the opportunity to ask questions. Just one thing to clarify, though. In the Q1, you talked about -- well, at the earnings call, you talked about doubling to around 9,000. I just want to make sure that, that's a forecast, not that you're calling that you hit that. Just...

Q1 is not done yet. Sorry, Q1 is actually end of March. So we are on target to hit that. We haven't -- that's a good -- thank you, a good clarification there. We are on target to get to that by end of this quarter, and we expect to at least double that every quarter.

Great. in terms of productization, you've had a personal history of bringing products to market, whether it be TI or Qualcomm, Micron. And I recall from the recent earnings call, the importance that you attribute to customization. Deriving from your prior experience, why is that important when you're working with customers?

Yes. That's actually a very good question. I mean when I talk about customization, I'm actually talking about, in this context, mainly the customization of the physical dimensions of the battery, not the battery chemistry itself. Because if you look at consumer electronic products, people, whether the IoT or laptops or phones or watches, our customers spend a lot of time on the idea of the product, a watch, how it fits, a phone, the shape of the phone, the display, the cameras, where they go and all that. Once they choose all those things and choose the ID, they have a slot for the battery. And every product has a slightly different slot, not completely different, but slightly different, but they're all still rectangular, varying X and Y dimensions and the Z dimension doesn't vary a lot. So it's important for us to be able to make batteries to fit those dimensions that they have. So that's why our machines now are built to be able to customize those. I'm not saying we're going to make infinite shapes, but it's important to make a few different shapes, at least to hit all those high-volume markets.

As we're in an industrial conference, I think a lot of people think mobile and maybe IoT as it relates to wearables like watches. Tying into the theme of industrial conference, what can your battery offer to, I'd say, broader industries that don't really -- people don't think about when it comes to lithium-ion batteries?

Yes. I mean when you talk about industrial IoT, industrial IoT is actually a pretty big space, and a space that I'm quite familiar with because when I was at Qualcomm, we sold a lot of product, a lot of Snapdragon processors and WiFi and Bluetooth and power management and RF components in the industrial IoT markets. You can think of industrial IoT markets as many, many different applications. We saw an application where, for example, you wear something on your hand, it's a wearable, but it's got a scanner. And when somebody is picking up a box, it just automatically scans the label on the box, and that's a battery-operated device. You don't think about that, but there's a ton of them on people stacking boxes. I've seen products that where you have it in your shopping cart and you work though -- go through grocery stores and you can quickly tag what products you're buying, you can think of 2-way radios. You can think of -- like I said, when you return your car at Avis or whatever, it is done that way. When you think of all the factory automation. So there's actually a ton of products from helmets to wearables to so on that are in industrial IoT spaces. Security cameras, surveillance cameras and so on. So those are all products for which people need lithium-ion batteries. And so I think it's a huge space. And also, the other thing you find in those markets is the life of those products goes for 5 to 10 years. So then what happens is batteries don't last that long. So those products, unlike the phones, have a back that can be taken out and you buy a new extra battery and you recycle the old one. So this technology is great because now because we produce so much more density, they can -- don't have to charge it as often. When you don't charge as often, these things last much longer. So there is a huge opportunity for the whole renewable space. One of the big problems with batteries is that they don't last as long. So you charge them a lot, and then you have to get rid of them and it's a big problem, right?

Makes sense. I want to make sure if anyone has any questions in the audience before moving forward. Let's pivot to manufacturing. It's -- sorry, go ahead, please.

Just a quick question on sort of cash. With $300 million of cash on the balance sheet, could you sort of remind us on the cadence of cash burn from here? Is it your view that a capital raise isn't a necessary outcome? Or as you think about ramping new lines, what the appetite is for customers to take on that funding, what the trade-off is between sort of that route versus you taking it on yourselves? Just if you could talk through the puts and takes there.

Yes. Yes, great question. We -- I mentioned in the earnings call that we expect to spend $120 million in OpEx and $120 million on CapEx this year. We have $320 million in the bank. So we can fund the first line and go through this year. But we are -- of course, as we need to bring in more lines, commensurate with the demand, we will need to raise more money. And we have a bunch of options for that as I -- we -- going into Asia helps us because a lot of governments there and government agencies there want us to create factories there. So there's opportunity to work with them to actually get some of that CapEx stuff worked out. A lot of companies have done that in the chip industry. It's quite common practice. Customers are super interested in working with us. And we provide this kind of differentiated technology, they want to use it, but they also want to have assurance of supply, which means they would like to help us. Maybe fund some lines so they can get assurance of supply. So that's also an opportunity. That may be a little bit later in the year because we've got to give them enough samples from our genuine line for them to get comfortable. And of course, we will be opportunistic with capital markets. Whenever there is a good opportunity present itself, we are open to raising more capital that way. So all of them are open right now.

Yes, just on the -- maybe you call it design wins, and you had a number of like $600 million to $700 million. Yes. Can you just help kind of define that a little bit. What it means? Is that like a contract that has to be fulfilled? Is it sort of contingent on your second factory up and running? Because I look at some of the sell-side projections for your revenue, right? And it's quite different from that number. And I'm just trying to route the two.

Yes, absolutely. So this is, again, sometimes I'm at a fault of speaking too much semiconductor lingo. I'll kind of explain how the process works. Typically, what we do is we have a customer that will come in, we'll call them and say, "Hey, we have this great battery technology." And then they would say, "Give us samples." And we give them some samples of our battery. And we look at the market opportunity there at that customer, how much are they shipping and so on. And they will test it. And then they will say, "Okay, this battery is holding up, just like how you said it would. It's got the energy density, is running the number of cycles." Then the move from what we call, I don't know, supported business opportunity to design in. So now the customer has a product and we consider their design in. But they haven't decided at that point. Then they will say, "Okay, we're going to put this in this particular product." Because the same customer could be making 6, 7 different products, but they will say, "Okay, we'll put you in this wearable device or we'll put you in this smartphone device." And then they will do tests that are specific to that device because a watch operates differently from a phone, for example. And when our stuff is in there and they're doing those tests. And after the passing of those tests, they'll say, "Okay, this looks good now. It can go into this." That's when we call it design win. So we -- now we are in that product. Now the next question is they will put it in there and we're able to give them enough samples like hundreds to sometimes thousands and then they will test them more rigorously. And when it passes all the qualifications of that, then they'll place a purchase order, that's when we call it true design win that we're actually getting purchase orders. So the numbers you see are -- we don't have that many batteries right now. We're only making -- we will make 180,000 this year. Clearly, that number won't meet up those millions that you saw there. But the idea is we do have customer interest and customer traction and customer funnel of the opportunities where they're getting qualified, so that when we do produce them next year, we have places to put them in the year after. So all of those numbers may not happen next year. Typically, this takes 2 to 3 years before they go to production. So this is kind of an indication of, how should I say, a more confident, more solid indication of the true demand that's out there for our products at these customers.

So they're not purchase orders. Is that correct? They're...

Not...

They've been approved. Like, if we do this product, when we do it, you are the battery that's going to be in there. But...

No, no. That will happen only after we get to a full design win stage where they made the product, it looks good. That's when they make the purchase order. So the lead time of purchase orders is more in the weeks, not years.

The design activity has been pretty exciting. That was kind of what, I'd say, drove a lot of the interest maybe last year. But as the year progressed, it became more clear that it's all about sort of your ability to make this at scale and manufacturing and costs. So it was a good milestone last week with the completion of the design review. I guess what gave you and the Board confidence to move forward with that? And maybe more importantly, what's next in terms of timing? When will the POs get cut? I guess, how should we look at the progress this year to really be the first, as we think about next year when you really start to ramp in volume?

Yes, a really good question. I mean I think that question is on top of many people's mind because the technology is very compelling. And the question is when is it going to come to the market? When can people take it? And we did have some challenges in getting our Gen1 line to the throughput that we thought it would get to in the previous management, and we had some issues of scaling. What happened there was that when we built the Gen1 line, it was expected to run much higher throughput than it is running now. And there were a lot of -- the team that was there before was a great team that did phenomenal R&D to come up with this battery, but we didn't quite have the manufacturing expertise to build the right machines. So we learned a lot by building the Gen1 line of what not to do in terms of high-volume manufacturing. So what we did since mid-last year to now, is to come up with a lot of what I call proof-of-concept experiments on both Gen1 and with our new suppliers on Gen2 machines to make sure that the problems we had in Gen1, we will not see them on Gen2. So for example, you saw there a little video of Gen2 line already up and running. So we actually have this time around got some of our suppliers on their own dime to actually make prototypes of the Gen2 machines and show that they're working and we tested them and we demonstrated it. We had like a 53 proof-of-concept exponents that we defined, and many of them are in different stages of completion. And the ones that we actually, we're confident, completed; we presented to the Board and the Board was like, "Okay, I think this time around we got it right." So we placed POs for those machines. But we only placed 10% of the money. So now they need to build those and then there's different acceptance milestones through this year where we will look at the machines, see what it's producing. And now there's things like is it producing at the right rate? Are we getting the yields properly? Is the units per hour coming out properly? And are the cells holding? And then we release more money. And then finally, there's a factory acceptance as everything looks good in their site. And then the site acceptance when they have to deliver it to our site, that's when it all gets done. And we feel like those will be the milestones that will be communicated through this year, so to kind of build more confidence that we can actually manufacture these batteries in these new lines.

I want to see if there's any last-minute questions here. All right. So you and I both work in semiconductors at fab companies, fabless companies as well. I've seen the Fab-1 line. But I guess from your perspective, how do you compare and contrast this process with a manufacturing process. I guess from your view, what's hard and what's comparably easier?

Yes. No, that's a great question. I mean, actually, if you look at semiconductor manufacturing, there is a front end and there's back end as they broadly call it. Front end is where you actually make these wafers. And that's very complicated, very, very expensive machines, $200 million to $250 million machines. Clean rooms, you can't even have a dust particle anywhere. And huge manufacturing facilities, and we have those. And once it's done, you cut that wafer into small dyes. And then there's a concept of back end. Back end basically means you take all those pieces, the dyes, which a lot of engineering, a lot of money went in to make, and put them inside a package and seal the package and get the pins to come out. And then if you have multiple dyes, you stack multiple dies and put them in one complex package. That's the back end, and then you test them. This manufacturing is similar to the back end and test. It's not like the front end manufacturing of making complex wafers. That is done -- the equivalent of that is actually in the materials, which is done by the people who make the materials, and we buy the materials. So we're not building factories to make materials. We're building factories to do the back end and test. That is the least expensive part of the semiconductor manufacturing. That is something very important to understand. And the other thing to understand is the tolerances. Back end and test machines, as I showed, are still 1- to 2-micron tolerances, and we are building in the 25- to 60-micron tolerances. So this is not a very complicated problem for someone like me who grew up in semiconductors. But we just had to make sure the diligence and the acceptance criteria and proof-of-concept experiments and making sure a little bit of is working before you move to the little one, that discipline has to be brought in, and that's what we're bringing in. So I'm not too concerned about the ability to make them. And the other very interesting parallel, which I think is important to realize, is that in semiconductor manufacturing, when you move from one process to the other, you have to buy a whole new set of machines because they shrink. In battery technology, we change the chemistry. We get much higher energy density and more cycles. When I say change the chemistry, change the anode and the cathode. But our exact same machines still work. So that's the beauty of this is that the investment in the factories is a onetime, and we can keep improving on the process node.

That's a great explanation. Well, unfortunately, we're out of time. We really could go on and talk about all the great things the company is doing, but thanks for supporting the conference, and we look forward to following the progress. Thank you.

Thank you very much, Bill. And thank you all for listening.