QuantumScape Corporation (QS) Earnings Call Transcript & Summary

Yes, happy to kick off the next session with QuantumScape. We have today the CFO, Kevin Hettrich, obviously, a leader in solid-state batteries. And I think you're going to kick it off with a short presentation that we said...

Yes, just a few minute overview of the company. So Colin, first of all, thank you for inviting us to the conference. It's our pleasure. So QuantumScape started 15 years ago to give the world much better batteries on all the dimensions you'd care about, smaller, lighter, faster charging, safer, longer-lived and lower cost. To do so, to make that type of dramatic change in all the elements, we wanted to change the chemistry from the lithium-ion batteries we use today to what are called solid-state lithium metal batteries. A brief primer on the difference. So lithium-ion battery, you have an anode, you have a cathode. The way batteries work is when you charge them, lithium-ion goes from the cathode to the anode and you charge it, like rolling a ball up the hill. When you want the energy back, it goes in the opposite direction. It's called lithium-ion battery because when you charge it, the lithium is stored in an ionic state. It's held in a kind of a graphite silicon organic electrolyte layer. What we're working on commercializing in solid-state lithium metal. It's called lithium metal because in the charge state instead of being that kind of sponge that of host material, there's nothing there as we manufacture the device. It's instead stored as a very thin layer of lithium metal. You save weight and volume from the anode that you eliminate. You improve charge time because there's less distance for that lithium-ion to travel. You improve safety because you've removed organic material from the anode and you improve life because one of the major sources of life loss is in that anode that we eliminate. So that's -- and then the elegant thing is you get all those benefits by not making something. So all of the bill of materials that goes into the anode, all the transformation costs that go into the anode go away. And to make that system work, the real engineering and process challenge is what is that middle layer that enables that lithium metal anode to work, and that's where the solid-state part comes in. So we've developed a very thin ceramic layer that enables that system to work. And that's really the core IP. So I'm sure we'll get into all the other aspects of where we are in terms of customers and pilot line and business model and focus as we get into the rest of the conversation.

Sure. Maybe just to kick it off, I mean, I think you were founded in 2010. That's right. You had the Volkswagen partnership in 2012. That's obviously a ton of excitement done. And I think you had prototypes ready by 2020. Where do you stand in sort of the launch time line? Because I think it's taken a little bit longer than expected.

Yes. So when the company was started 15 years ago, it wasn't clear that the material even existed that would let you meet a demanding application like automotive. So the first 5 years or so where you're trying to answer the question, does the material even exist, work down to a subset of materials and finally found one that we thought we had promise. In 2018, actually Volkswagen in a press release made public that they had seen this kind of working. So lithium metal was very promising. They also announced kind of our relationship publicly for the first time. In 2020, as you mentioned, the prototype maturity at that time were kind of larger single areas. The remaining work to do at that time was to make multilayer devices and to continue to work on the maturity of the cells as well as on how they're made. We then moved into automotive A-sample stage in that kind of '22, '23 type time frame. And in parallel, we were making advances in how that ceramic part is made. The company has had to do a number of things that were thought to be impossible in addition to the material. Can you make it thin while it still functions? Can you multilayer it? Can you make that ceramic part continuously? And can you do so with no excess lithium metal in the system, all of which we believe are required for a compelling product. So we first took -- we demonstrated the continuous processing. We made an 8x improvement in that processing. We like to use very fast animal names to describe our separator process. The first one is Raptor. And then in 2025, made an improvement on that, a further 25x improvement in a process called Cobra. If you combine Raptor and Cobra together, 8x25 is 200. So we were then 200x faster than the conventional continuous process that we had, which we think is an important step towards automotive commercialization to have a very scalable process with which to make the ceramic. We announced the first product in 2024, the QSE-5, published kind of published specs 844 watt hours per liter, just over 300 watt hours per kilogram, charges between 10% and 80% in just over 12 minutes. And we talked about the exciting safety profile of those devices. Notably, if you get them quite hot, quite uniquely in our system, you don't have kind of a cascading safety event because of the reasons that I mentioned earlier. Just in -- just earlier this year -- well, actually, let me -- so that was the first product announcement in 2024. We had the global debut of a vehicle demonstration at the Munich Auto Show last September, where we power a solid-state V21L race bike across the stage, a pretty passionate -- a pretty emotional moment having started 15 years ago, it doesn't materially exist to actually see it in Ducati. That was a wonderful partnership with Audi, who did the system. Ducati, of course, did the bike and together with our colleagues, PowerCo did the cells. I should talk about -- and then we just inaugurated a highly automated pilot line just this February called the Eagle Line. So that sets us up kind of nicely for the next steps of commercialization. I would say that we consider ourselves in that commercialization phase now. In Q3, we started receiving payments. That first one is from the Volkswagen Group. We are in a -- our business model is one of collaboration and licensing. That was the first example of a collaboration payment, where we take our broader technology platform and then work with customers, who give us payments to either make development specific to them to sample prototypes to demonstrations like the one that you see with Ducati. That's near-term validation that's cash into the company. And then we're working to set up that longer-term licensing model. So I'll stop talking and let you ask some more questions, Colin.

You mentioned PowerCo. Is that the Volkswagen battery?

Wholly owned battery group. So we've been working with Volkswagen since 2012. They've invested in multiple private rounds as a company, more than $300 million of investment. And then we've struck a collaboration and licensing agreement first in 2024 and then upgraded it in 2025. There are 2 components to that. One are these collaboration dollars. The current -- the contract has a cap on those of up to about $131 million, where we can collect those against kind of milestones scheduled in the contract. Investors started getting insight into that, again, with that first payment in Q3 of last year of roughly $10 million. And cumulatively, in the last 3 quarters across all kind of customers and partners, we've done about $30 million. That -- so that's the collaboration part of it. There's a team from VW PowerCo, their wholly owned battery business on site in San Jose right now, I guess, maybe a little early for them, but arriving soon to work kind of shoulder to shoulder with our team on that pilot line. On the right side of the chart, the licensing side, by far, the larger economic opportunity. They have a license kind of once triggered of up to 85 gigawatt hours, 5 of which can be used for nonautomotive applications if they choose, and there's a royalty structure there in place. So that's our most mature and advanced automotive partnership by far. We do work with 4 of the top 10 global automotive OEMs. We think of it as in terms of a stage progression at the stage before that larger scale collaboration and licensing agreement. We have 2 in a joint development stage, where we're doing confidence building steps with that partner towards that larger scale VW-style agreement. And at the stage before that is the fourth OEM, which is a technology evaluation agreement, which we just completed successfully with that fourth top 10 global OEM. They had teams on the ground. They're making comparisons with us versus other technologies that ended successfully. So that's the automotive side of the story there.

So I think you mentioned the Eagle Line, is that, that is with PowerCo? Or is that your own line?

It is our own line, and we're working kind of shoulder to shoulder with PowerCo. So...

PowerCo will be making the batteries for the Ducati?

For the Ducati that we demonstrated, you can think of the teams working together to stand up the line, to operate the line, et cetera. And then those parts went ultimately into the Ducati, and there's additional work that the teams are kind of working on after that. One of the next goals is to do -- is to still test that Ducati, which is something that the teams are both working on. Our business model is to -- what we're working to is to -- one of our 4 public goals this year is to continue to advance our automotive partnerships. That includes both Volkswagen, notably with that field testing and continue to making steps towards granting that license and then to continue to advance those other automotive partnerships, including those other top 3 global OEMs, and there are people earlier in the funnel, too. Just because I mentioned 1 of the 4 goals, the other 3 would be to expand into other high-value markets, where we think the technology is a great fit. The adjacencies you've heard us talk more about in the last 2 earnings calls are aerospace and defense and AI data centers. We can talk more about that if you'd like. And by the way, it isn't a coincidence that we started talking about that more with us inaugurating the pilot line. That's the first time that we have line of sight into parts supply kind of beyond VW, beyond those other OEMs where we have that sampling-type capacity to engage others. Demonstrating scalable production off that Eagle pilot line. The goals of that line are to continue to mature development, kind of keep coming down the cost curve to do that type of prototyping and sampling with customers in automotive outside of automotive and to ultimately do that tech transfer-type activity. Of course, we're working on all the efficiency metrics you imagine we have to in order to hit our annual guidance to produce quite a bit more parts with relatively flat guidance. But the real proof is in the pudding as you see other partners sign on to the ecosystem and other OEMs engage with us in that kind of commercial progression. And then the fourth and final goal is to move beyond the QSE-5. We are a technology licensing company. Our first product, the QSE-5, we think in combination may have performance attributes that are beyond what lithium-ion can ever do. For us, in a very exciting way, that's just the start of our technology S-curve. You've heard us talk about a few vectors, change in the form factor, QSE-5 is about a 5-amp hour cell. Of course, making those parts larger as some OEMs have requested is one vector. If you read our Ks and Qs, there's other things you can do on the cathode side. Once you've eliminated the anode that's manufactured, that's theoretically as good as it gets. So a lot of the action goes to the cathode side, both iron conductor and the cathode material. So stay tuned on that over the rest of the year.

Can we just maybe start to take a step back, just broadly, why -- what is the opportunity going to solid state or solid metal is that...

Yes, solid-state lithium metal. So by eliminating the anode, as I mentioned, you save weight and volume. So that I think people intuitively get, if you're designing a product, that might open up products that you can't have if you -- maybe -- I'll keep the example of automotive going. You can either shrink the battery pack or alternatively, you can put a whole bunch more range into the vehicle that you otherwise couldn't do. Charge time, like the experience at a gasoline station, probably 5 or 6 minutes to refill, we think gives you -- while holding that world-beating kind of energy density constant, getting into that 12-minute type zone, you're starting to get in the ZIP code of the experience that you'd have on like a road trip. And we think further progress there, of course, is helpful. Actually, in fact, if you show the Pareto curve, that should be a nice way of showing it. Safety, that's also, of course, want safe cells and systems by removing the organic material from the anode as well as substituting today's kind of plastic-like separator that's got memory and it was a ceramic part. We think those are both steps towards safety. And then on life, there's real value to add to electric vehicles and other applications by extending their life for a few reasons. One is it helps dramatically with the resale value. We found in VW published testing of our A-sample data, we were having about 1/4 the fade relative to automotive specs over extended cycling. So you can imagine that helping the resale value of the car or other emerging use cases if the cars themselves are just driven a lot more per year, for example, under an autonomous-type use case, that's a pretty compelling benefit. And then at scale and at maturity, because we have the bill of materials for our ceramic is an earth abundant material on all the continents with multiple different suppliers. And then our method of making, we're really leaning into its efficient manufacturer with that very high-speed heat treatment process. We believe at scale and at maturity of that process, we can actually be both lower cost than the conventional lithium-ion at the time as well as much higher performance in all those dimensions, and that will be a pretty big sea change moment.

Where do you see current like LFP today in terms of cost and where you're aiming to get your technology to go?

Good question. So maybe a global price is in the ZIP code of $80 and within China would be kind of lower. The bulk -- like if you look at other chemistries costs of nickel, manganese, cobalt, for example, or the nickel-rich chemistries, that drives up the price of the cell and also improves performance. I would like to highlight that our platform is cathode-agnostic. The vast majority of our publicly disclosed data is on a nickel-rich cathodes. We're trying to push the limits of performance. We have shown data with our solid-state separator lithium metal paired with an LFP cathode, just to remind investors that, that is a platform. In that collaboration phase, it's -- we have discussions with the customer in terms of which cathode would you want, how do you want to trade off power versus energy, what's the form factor you'd like? That would be in the standard type of customization that we would do. If a customer is optimizing for cost, you could go towards one of those less expensive options. They wanted to push towards energy, which most of them do in our conversations, you'd end up in those -- in that nickel-rich type camp. But as I mentioned, the goal is with maturity and with scale would be to offer both higher performance and a lower cost solution.

But any color on can you get to $60 a kilowatt hour? Is there any public target thing?

It's a function of what you think lithium-ion can do. So if you take the kind of prices in China for LFP are probably in that ZIP code or approaching that ZIP code. If you hold constant that access to the cathode material, maybe most importantly, we would be similar or better. Because we -- there's 3 types of components in the cell. One is those that we share with the lithium-ion industry. The cathode has got many of the foils, many of the processing steps. The second category is things that we just outright eliminate. We don't purchase the anode material. We don't process it to make anodes, et cetera. And then the third category is things that are specific to our system, which is that ceramic part. So much of our pricing, the most expensive component like in our kind of long-term pricing model is that cathode material if you hold that nickel -- the current nickel, manganese, cobalt-type pricing constant.

So what would the advantage be? I thought cost was the long term...

It is. If you're holding cathode chemistry constant, we'd be cost advantaged. So if you wanted to -- it isn't a -- there are 2 very different cells, but holding cathode chemistry constant. So if you do an NMC cell or LFP versus LFP, we'd be cost advantaged.

NMC is like $100 a kilowatt hour and something that you get to $65 and similar...

Today, the -- so if you maybe make that a little more clear. You name the -- our partner would name the cathode chemistry. And then our goal would be at scale and at maturity, we would beat it relative to lithium-ion cell. So if they said, here's my lithium-ion cell that's got NMC, our variant we're seeking for both higher performance and lower cost. They said, here is our lithium-ion cell with LFP, we would seek to improve performance and lower cost.

I mean how much lower cost on the same type of chemistry, I guess I'm trying to gauge.

You'd work in some extrapolations. So I don't -- it's a tricky -- you're kind of pulling me out of public guidance there. And the other thing is like if you think about it, our -- as a technology licensing company, the most compelling thing is providing products that don't exist today because of that higher performance. You should assume we enter through the high-performance luxury parts of the market and that we wouldn't be -- it would be rare that a customer would be considering us and an LFP cell at the same time. Just as a comparison, the LFP-type chemistries are less than half the energy density of the QSE-5. It's a completely different product targeted for a completely different part of the market.

I mean when is the Ducati launching? And is there a car? Any time line of when...

At the Munich Auto Show, the target stated was to commercialize before the end of the decade.

And you said you're working with Volkswagen and that's in a prototype stage on the battery for a car?

So in that collaboration agreement are a set of kind of milestones and demos. The next one up is to do field testing of that Ducati bike.

Okay. Okay. You did mention data center and A&D. That's obviously a big hot topic in auto-type names of getting out of auto. So what makes your product more or compelling in those areas? And what are the functions that those batteries are being used for?

So this is 1 of the 2 high-value adjacencies to automotive that we think is particularly exciting. far earlier days than automotive. Specifically, the use case we are focusing on is in-rack power supply in close proximity to the GPUs. That is a tiny -- it's a tiny market today. The bulk of the energy storage opportunity right now is outside the data center and often a separate building called BESS, battery energy storage systems, which is predominantly providing a backup-type solution. What we're targeting would be interact near the GPUs to help with high-quality, cost-effective delivery of power to the GPUs. So the GPUs consume power erratically in a volatile fashion. The most -- we think the most cost-effective way to deliver power to the GPUs is to put in all the infrastructure to deliver the average and allow the battery to do the buffering. You save hundreds of millions of dollars of CapEx-type costs, you reduce the demand on the utility for kind of power supply. But then to do that, the 2 attributes you'd be very sensitive to, one is volumetric energy density because of the opportunity cost of the real estate. And then the second is safety just because of the value of all of the assets in a data center, it's intuitive that you'd want that to be a very safe solution. So early days, we think that can be a very compelling fit, and we are getting a lot of inbound interest to explore that.

So you'd be actually physically in the rack.

It would be in a cabinet dedicated or in the same rack.

Okay. So it would be different than the battery storage backup...

Correct, which is traditionally lithium-ion outside in a separate building.

Okay. And then the A&D opportunity...

Aerospace and defense. So anything you put in the air, you want it to be light. You're often very want -- you very much want extremes of power for takeoff. And if you have humans in it, safety. So the combination of weight, safety and power, we think, is a great fit with anything aerospace related. And then defense, depending on the application is the same, those similar type attributes.

Got it. Okay. Where do you see -- you mentioned like China being like on LFP at $65 below it 10 years ago, any way that was possible.

Correct.

Is that the plateau? Or do you think they could even bring that lower? I mean, are you sort of trying to get your costs below the lower moving target, I guess?

So our -- it's a great question. We're cheering for the industry to continue to make gains across the board in the materials and the processing and the equipment. We have overlap with the industry in many of the same steps. We share many of the same suppliers. So we want gains there. Where our differentiation comes from is the elimination of the anode, so the bill of materials there as well as all the processing equipment. We also -- we didn't talk about this. Secondarily, we have a bunch of savings in the formation step. So that's a step after cell assembly where often in a process measured in a low number of weeks, the cells sit and they form a kind of a protective layer of the anode. We don't have an anode to form a protective layer over so we can skip that step. That's -- some of -- I believe Tesla has -- or Panasonic has talked about that's actually the most expensive step in their process. And we cut that down very, very substantially because we don't have an anode to do a protective layer against. So -- remind me the original question again? I lost my train of thought there.

It was about -- we're talking about the long-term cost...

So our goal is to -- for our separator to be less than the cost of their separator plus the anode that we eliminate, and we have confidence in doing that. So our goal is to kind of undercut below. Can there -- I think there will be kind of continued cost improvement. I would highlight that the rate of energy density improvement in the kind of lithium-ion space is very much slowing. We think getting on to a new platform, we get to restart the S-curve, and we have a much more compelling kind of R&D kind of road map. So our goal is to actually expand over time, both the performance and the kind of cost savings.

But at some point, [ if it's a floor and they'll last the batteries stuff. ]

Yes. You can never -- a good -- one good thought experiment is just like what's your magic wand price of just the raw materials. You can, of course, never exceed that. And then the goal is just to get closer and closer and closer. There's a lot of smart hard-working people, and I expect they'll make kind of year-over-year gains getting kind of closer and closer to it. But that's -- to your point, it's a pretty efficiently made sell, and they are running out of opportunities to do that. And we would be getting on to a new cost curve that's got a lot of room to run.

And what does the -- who are your main competitors today? What does the landscape look like?

That's a good question. So we divide the competitive landscape into 2 parts into lithium-ion, which is -- has that architecture that we discussed. That's what's kind of widespread today. And then into lithium metal, where those are in the very early part of commercialization. So on the lithium-ion space, we've talked about all the different advantages that we're targeting. And we think there's structural reasons why you outperform on performance and then the long term also outperform on cost. Within the lithium metal space, we do publish a nice slide in the investor deck, which puts onto a single slide what we think are all the core performance at the same time. On the Y-axis here is charge time for repeat cycling on the X-axis is life. The size of the circle here is a kind of a nice correlation with energy density. If you have no excess lithium in the system, you have kind of a big circle. If you have excess lithium, you get a small circle. And then the color is the difficulty of the other test conditions. Red has quite high power or pressure, which would, I think, limit the useful applications you kind of find. Blue, you could probably do with the support of the system, like in automotive products, you have the support of a system, which can help with kind of pressure and temperature. And then green, we think can work natively, because the cell by itself can work at, for example, at room temperature, doesn't need applied pressure to function. To be an automotive product, we believe you need to be on that line of one, which is a 1-hour charge, 1-hour discharge for long-term repeat cycling to at least 800 cycles before you lose 20% of capacity. We, of course -- we've shown the chemistry can do that with no applied pressure at room temperature, and we don't do it with any excess lithium metal. We're the only ones who have ever shown that. In fact, we're far ahead of everyone on multiple dimensions as you've seen. So we don't -- in the fullness of time, it's a hundreds of billions of dollars of TAM, we think, just in automotive alone, you start adding up these other industries, there's room for lots of winners. We don't see anyone who's close to us today. That kind of competitive landscape does keep moving. The other nuance is people -- there's a diversity of materials in there as well, some of which we've worked with and are skeptical may ever work, but that's kind of the competitive landscape today. So we're -- so we actually focus mainly until we see someone kind of show the chemistry kind of works, a lot of our focus, we look at what are the trends being set by your CATLs and BYDs in terms of that inexpensive LFP cell, what are the LGs and Panasonics doing in terms of that energy density rich kind of nickel cells, and then we also kind of have our eye on that.

I mean what if you were -- investors were meeting with some of your competitors. I mean everyone always spends their story positively. What do you think are the KPIs that you should be asking about to kind of fairly compare?

It's just what's your prototype performance on all the dimensions at the same time, because it's easy just to focus on one. It's like I have energy density of blank. I have fast charge time of blank. But to have a product, it's a multipart and statement. You need to be small and light and fast charging and long-lived and hit your kind of cost point in time. So it's -- it would be -- we've tried to be the standard-bearers just in terms of transparency for showing all these metrics simultaneously. And I think if there was a single -- if there was a single test, we would say, just plot yourself on this chart.

It would be a good we'll get on charge...

Because this is the long-term cycling, you're explicit on the rate, you're explicit on the temperature and the pressure. And then you're commenting if you're using excess lithium or not, which would be a real impediment to bringing out a product because if you add lithium that you don't need in the system, it's expensive, it hurts your energy density, it probably hurts your life, and it's not needed. So this would -- this is probably a nice single -- we think this is a very elegant single slide summary. And it also -- it's like what have you demonstrated not what are you trying to do.

Any questions on... Maybe one, we've seen there's some headlines of BYD doing fast charging, what some of the advantages are fast charging. What is the difference between what they're doing and what your technology could do?

So a good example of, in that case, BYD only talked about the charge speed. So I think it was something like in the 5- to 6-minute type ballpark, which is very compelling. But the question is, what are the rest of the metrics doing? It's -- anything else is just kind of extrapolation. It's probably an LFP cell, which has less than half the energy density what we're working on. It's almost certainly a lithium-ion cell, which has inferior kind of safety. So it is helpful just to disclose the rest of the suite.

So the -- what is the challenge with their technology? It's just you don't have enough information.

No one does. It's not public. They published the charge speed in an isolation.

Okay. What about other -- you mentioned data center and air and defense. What about -- a lot of people talk about drones. I think it like solid-state competition that's almost unique there. Is that a market you're looking at?

Yes, I would put that into the aerospace and defense ZIP code. So both things that fly in the air and also things that are under the water, I think, are both -- would value energy density gains, the power life safety actually as well. In a military-type application, you also -- it needs to get to where it's used. And then safety, in particular, is important in those steps. Many things go via the U.S. Navy, for example, use the U.S. military example, and you want safety from kind of point A to point B.

And what about funding? So I think you're burning a bit of cash now. How long -- how do we think about the funding pipeline?

So we -- at the end of Q -- on our April earnings call, talking about Q1 results, we had about $900 million of liquidity. So -- and that is very substantial kind of funding relative to our cash burn rate. We haven't -- because of the size of the balance sheet, a few quarters ago, when we started doing customer billings, we kind of retired giving kind of cash runway until guidance at the time when we took that out, it was into 2030. And what we told investors at the time, you guys can see the balance sheet, you can kind of see the cash burn. We think for the current early commercialization phase that inflows from customers is maybe a more useful metric. So it's very strong. So we're a very well-capitalized company, and we think that is kind of both a strength and a differentiator for us in the space. Just to put out some other kind of -- the other guidance, which we reaffirmed on the April earnings call. EBITDA loss between $250 million and $270 million is relatively flat year-over-year. $40 million to $60 million of CapEx, most of which is for the beyond the QSE-5. And we said we are tracking to year-over-year increases in the customer billings.

Okay. I think we're actually out of time. So thank you very much for joining us. Thanks, everyone.

Okay. Thank you, everybody.