QuantumScape Corporation (QS) Earnings Call Transcript & Summary

Good morning, and good afternoon, everyone. Thanks again for joining us at day 2 of TD Cowen's Second Annual Sustainability Conference, which is being held virtually. I'm Gabe Daoud, TD Cowen's charging, energy and battery analysts. Next up, we're delighted to host QuantumScape's CEO, Dr. Siva Sivaram. QuantumScape has ensured folks on the line are fully aware is attempting to bring to market a solid-state lithium metal battery for the use in electric vehicle applications, and the company is leveraging its IP around its ceramic separator, which will enable the use of a lithium metal battery and drive ultimately energy density benefits, fast charge benefits and safety benefits as well. So with that, Siva, thank you so much for joining us.

Thank you, Gabe. Good to be here.

So how to -- we sort of just start with a little bit of a background on yourself and what attracted you to the QuantumScape opportunity. Obviously, you're fairly new in your CEO seat. So would love to get maybe some of your takes on how that's going to go so far and, yes, what attracted you to the QuantumScape opportunity?

Gabe, you are indeed correct. This is 3 months and 1 week in the job. I'm a 40-year veteran on the semiconductor industry, and I have some stints in solar as well. And my strength has been in taking difficult technologies into very high-volume production, whether it is 3D NAND or high-volume hard drives or in solar, I have had an experience of taking very difficult technologies from enabling the technology to all the way to very, very high volume production in customers' hands. And as I was finishing up my focus in Western Digital, where I was the President of Western Digital, which is a very large data storage company, I was looking for an opportunity where I could make an impact. And I will start with Jagdeep Singh, the then CEO of QuantumScape, and we had a very nice long conversation. I dug deep into the technology at QuantumScape. Here's a place which has got a pedigreed set of people who have done some amazing things. We had a technology that is truly impactful right at the point of turning from technology into product. I thought this was a perfect place for me to come back, I mean -- and do something great with this technology. Our job collectively at QuantumScape is now taking this well-developed technology into very high volume as soon as possible to enable this energy storage revolution. That's where we are today.

Okay. Good. Very helpful. You also just recently filed your latest shareholder letter at the end of 1Q. Could you maybe talk a little bit about some of the highlights within the letter? You reiterated the 2024 goals. Maybe just talk a little bit about the road map for this year and what we should be paying attention to?

Yes. I'm prone to giving explicit measurable goals for every year and then making sure the investors actually see us hit it. So for us, we had 4 goals set up in -- for 2024. The first of it is to take this intermediate step to a product called Alpha-2 and getting that in customers' hands. And Alpha-2 is a well-integrated product like near-product battery that we could get in the customers' hand to test the things out for themselves and get back -- get feedback from them because the best way to iterate to a product is to make sure there is something constantly in a customers' hand where they're testing in [indiscernible]. When I take the Alpha-2 and integrate it with a Raptor film, and I put that in a 24-layer package, then I have the full product that QSE-5 that we'll be shipping later this year. So the second major milestone, which is the definitive transition into product is us delivering low volume production of QSE-5B samples, which we will do into this year. The other 2 enabling steps for us that we also wanted to make sure that investors knew on, getting Raptor, which is the -- an order of magnitude, step up in productivity of our ceramic separator. And then the very high volume that is going to be added for next year for high-volume B samples, getting ready in-house for enabling that ramp next year. Those are the 4 major deliverables, Alpha-2, B0 low-volume samples, making sure that we have Raptor running in volume and getting Cobra ready for production. And you'll see us as we achieve this, we will come back and talk to you about it. In the first quarter, we did indeed ship our Alpha-2s. We have them in customers' hands, and that's as promised the right thing to do in that time.

Okay. Great. I definitely want to dive into a little bit more -- we're diving into each of those a little bit more. Let's maybe just start with the ultimate product that you hope to commercialize, which is QSE-5, 5 amp power cell, 24-layer. Targeting, I think, over 800-watt hours per liter in energy density. Maybe talk a little bit about why with 5 amp power cell or it's actually not a power cell, but it's in your proprietary form factor. But why the 5 amp power capacity is the right number to be focused on? And maybe why potential EV OEMS will be interested in a 5 amp power cell?

Right. So as you would expect, you could go into any shape, any form factor for different EV manufacturer depending on what they want. We've been in contact with our customer and where they are starting. This 5 amp power, our Flex Frame package in this size is ideally suited for multiple applications. You could see it is roughly the size of a typical consumer product while, at the same time, it is roughly the same as a commercial EV cell that is already in the market today. So the 5 amp power. So it roughly compares. What it allows us to do is as our first product makes something that is broadly applicable and make sure we can ramp in high volume, allows us that learning step as we keep coming on. I'm a big believer in iterative steps. The idea of when you have the technology, as you are trying to commercialize it, make sure that you can make something very quickly, build it in the product, put in the customers' hands. And QSE-5, the 5 amp power cell is a perfect location for us to get started.

Okay. Okay. That certainly makes sense. So I guess, moving backwards now, you talked about Alpha-2, which [ has seen ] iteration that gets you closer to the commercialized product. So Alpha-2 was a 2-layer cell with a higher cathode loading and you've showed some pretty interesting fast charge data on that cell with the 1Q letter. Maybe talk a little bit about the importance of Alpha-2. Can you shift those? Maybe any kind of customer feedback so far? And the customers are okay taking -- so I guess the commercialized product is a 5 amp power. The Alpha-2 is substantially lower, probably still 1 millliamp power capacity cell...

Can I just take one step back before you go too far. It is not 2 layer. It is a 6-layer cell. It allows for the multi-stacking, making sure the customer sees that there are multiple layers in it. What we don't have -- the only difference between the Alpha-2 and the final product are 2 things. A, it is not Raptor films yet, and it is not 24-layer, but 6 layer. That's the only difference between this. So everything else is like the product. It's the same cathode or nearly the same cathode. We'll continue to refine it further as we keep going on, as you know. And everything else is in the same kind of package. We are ready to go take this into volume. So that's the reason Alpha-2 is an important step. It is almost a product like form factor.

You're right. So apologies, misspoke. It's a 6 layer, not a 2 layer. And it showed a 10% to 80% state of charge in less than 15 minutes. Can you talk about that impact on maybe cycle life? Are you able to demonstrate that level of charge on consecutive cycles? Or is that once every 5 cycles? Just maybe talk about the fast charging capability, how that impacts cycle life?

Yes. We have already shown to you earlier on a 1C-1C charge all the way up to 1,000 cycles with a 95% retention with -- by our data and by a customer. We continue to maintain that this technology can handle that level of reliability over time. We have done many different fast charging cycle experiments to make sure we look at it across temperature, across charge, across state of charge to make sure that this technology -- the ceramic technology that we have put in as a separator, its big enabling feature is its long-term reliability. What we did show in the Alpha-2, which I want to spend a little bit more time talking about this, the fast charge is 1/2 of the answer. The other half is fast discharge. So what we are now showing to you in each step of the way is, a, I've already showed you cycle life showing 1,000-plus cycles. I've shown you 24 layers separately. I've shown you separately the high loading cathode. I'm now integrating many of these in steps in Alpha-2 and showing. And you can see the step-wise thinking on both the construction and the performance. The energy density, the power density, the charge, the discharge, the temperature, all of those individually demonstrated and the construction individually demonstrated. So as the product gets integrated, you can see all of them coming together. So in this case, the fast charge capability, as you can see, we have repeatedly shown this to you. We had shown you earlier with 2 layer under 15 minutes. Now we are showing with 6 layer with the same high loading cathode with less than 15-minute charge. We also showed very, very rapid discharge where in 100 gigawatt hour battery pack, over 1,000 horsepower capability in this charge. And when that discharge is happening, how good is my range to make sure that I have enough energy density when I'm discharging that fast. That combination of charge time, discharge capability, energy density and the combination of both power and energy at the same time, that is enabled by the ceramic separator, and that it's just not possible for us without having that anode-free lithium metal ceramic separator, that's what makes this whole thing happen.

Understood. Understood. That's helpful. Okay. And as you, I guess, now scale from Alpha-2 to, ultimately, the commercialized product, which is 24 layer. As you scale from 6 to 24 layers and maybe just talk a little bit about expectations around performance and maybe what some of the challenges could be as you go from 6 to 24 layers?

Yes. So in this step-wise progression of growth, we are obviously constantly pushing the energy density to go higher and higher as we go along. And because the number of layers and the efficiency goes up, energy density naturally goes up as we stack more into the same package, both -- especially volumetrically and gravimetrically, it simultaneously goes up, which we have said that and it will continue to do. The more important thing for me is now to have a Raptor film in the package, the 24 layer and demonstrate it. The Raptor film is coming along very well. In order to improve the productivity, we need to have upstream automation, downstream automation, metrology, those things had to be set up. They're all coming together very well. We are starting to ramp. And once we put that together, when I have sufficient amount of volume of these Raptor films that come out, then I can build a volume of 24 layers that I can continue to test in all these conditions that we're in. So for this year, our biggest focus is making sure Raptor ramps up and I can make 24-layer B samples in small volume. Now I want to be careful about the number of layers, et cetera. I don't want you to get fixate that as we just get 6 -- 2 to 6 layers. The number of layers, whether it is 22, 24, 25, we will work with our customer in the launch vehicle as to what the right amount is. It's going to be in that number.

Okay. That's helpful. And maybe since Raptor is the key to it all for this year, could you talk about the Raptor process and where you are? I believe there's some site acceptance testing going on and some of the equipment. Could you maybe provide us an update on that as well?

Yes. So Raptor, the biggest difference between our current process of record in Raptor is how fast this sintering times. So when we take it through the high temperature step, the high-temperature processing of the ceramic requires certain amount of extreme precision, and we have speeded that up by an order of magnitude. And when you put that together, the rest of the automation has to keep up with it. The sintering process has been well qualified, released as we said last year itself. End of last year, we talked about the fact that our [indiscernible] processing step -- Raptor step has been released into production, the same acceptance has been done. Our bigger thing now is it has to match with all the other steps that need to come in and back and forth. So in a serial process, it is not just enough to have that one critical step qualified. The rest of the steps have too. And that all is now coming in where our insight acceptance are in qualification, many of them are getting completed. And by this summer, we won't be starting to ramp the volume on that. And it is going exactly as we had planned and predicted. There's no surprises so far.