QuantumScape Corporation (QS) Earnings Call Transcript & Summary

Thank you for standing by. Welcome to QuantumScape's Second Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Sam Kamara, QuantumScape's Senior Director, Investor Relations. You may begin, sir.

Thank you, operator. Good afternoon, and thank you to everyone for joining QuantumScape's second quarter 2026 earnings call. To supplement today's discussion, please go to our investor relations website at ir.quantumscape.com to view our shareholder letter. Before we begin, I want to call your attention to the Safe Harbor provision for forward-looking statements that is posted on our website as part of our quarterly update. Forward-looking statements generally relate to future events, future technology progress, or future financial or operating performance. Our expectations and beliefs regarding these matters may not materialize. Actual results and financial periods are subject to risks and uncertainties that could cause actual results to differ materially from those projected. There are risk factors that may cause actual results to differ materially from the content of our forward-looking statements for the reasons that we cite in our shareholder letter, Form 10-K, and other SEC filings, including uncertainties posed by the difficulty in predicting future outcomes. Joining us today will be QuantumScape's CEO, Dr. Siva Sivaram, and our CFO, Kevin Hettrich. With that, I'd like to turn the call over to Siva.

Thank you, Sam. I'd like to start by discussing our automotive commercialization progress. This quarter, we announced a partnership with Honda. This is a multi-year agreement aimed at advancing our solid-state lithium metal battery technology for automotive and other applications in the Honda product portfolio. Honda is renowned for their engineering excellence and product quality and has made significant investments in scaling up solid-state battery manufacturing capabilities. This partnership results from one of the most rigorous assessments of our technology to date. Our ceramic separator and anode-free lithium metal architecture enables QS to provide solutions to unlock the full potential of solid-state batteries. With Honda's diverse product portfolio, this collaboration allows us an additional pathway to expand into new high-value markets. We recently updated our ongoing collaboration and licensing arrangement with Volkswagen PowerCo with a set of milestones and payments focused on automotive cell development, larger format cells, and our future technology roadmap. We are also working with 2 other top 10 automotive OEM customers under existing joint development agreements. We continue to strengthen our relationships with automakers in North America, Europe, and Japan. On this front, we have shipped cells to an additional automotive OEM customer. We also see broad-based interest in our technology across a variety of applications beyond electric vehicles, including AI data centers and other advanced applications such as aerospace and defense. We believe that all these end markets can be served by our fundamental technology stack, but each customer can benefit from an individually tailored go-to-market approach. In order to serve our diverse and growing customer base, we are establishing three business verticals: QSEV for electric vehicles, QSDC for AI data centers, and QSAS for advanced solutions for applications including aerospace and defense. QSEV is working with auto OEMs around the world, including Volkswagen and Honda. QSDC is engaged with ODMs to design solutions based on QSE-5 technology for the fast-moving AI data center market. QSAS has shipped QSE-5 cells to a major American defense prime and is engaged with global players across the aerospace and defense industries. Next, an update on the Eagle Line, our highly automated pilot cell production line in San Jose, California. The Eagle Line serves several purposes. Greater cell volumes allow us to meet customer demand for samples, higher throughput accelerates the process development cycle, and automated equipment serves as a proving ground for scaling up production. Demonstrating scalable production of a unique technology on a first-of-a-kind automated line is a significant challenge, and as such, it is one of our 4 key annual goals. Applying our systematic, methodical, and iterative approach, we have made significant operational progress with the Eagle Line. Core tools are showing uptime greater than 90%. Key metrics of productivity are hitting our targets, and we are currently ramping sample volumes and shipping cells to customers. As we continue to improve process stability and control, we aim to further double cell output in the second half of 2026 and anticipate customer sample shipments accelerating across all three verticals. We are orchestrating a ne2rk of partners within the QS technology ecosystem with the aim of scaling up cell production. As part of this effort, we are working closely with established battery equipment vendors to lay the groundwork for future factories. We also continue to collaborate with our ecosystem partners at Murata Manufacturing and Corning, working towards high volume ceramic separator production using our Cobra process. Next, 2 updates on our technology. First, we have received consistent customer feedback that in addition to the combination of energy density and power capability, the safety profile of our technology is highly valuable. Competing next-generation approaches such as silicon or lithium metal anodes with liquid electrolytes, can pose serious safety hazards. In contrast, our proprietary ceramic separator is non-flammable and non-combustible, which enables an improved safety profile relative to lithium-ion cells. Thanks to the increased cell output from the Eagle Line, we are able to conduct larger scale safety testing across a broad range of commercially relevant tests, including nail penetration, external short circuit, and thermal stability testing up to 300 degrees Celsius, whereas conventional lithium-ion testing stops at 200 degrees. We are pleased to report that larger scale testing continues to show that QSE-5 is a significantly safer cell design compared to both conventional and next generation lithium-ion cells. We have also seen customer interest for our technology in cell form factors that are larger than the QSE-5. One benefit of larger format cells is improved packing efficiency, which can result in higher cell level energy density. In response to this customer interest, we have demonstrated that our Cobra process can produce larger area separators for higher capacity cell designs, which shows the flexibility and scalability of our ceramic separated technology to meet customer requirements. Lastly, I want to take a step back and look at the big picture. QS was founded with the mission to revolutionize energy storage. Today, it's becoming clear just how consequential that mission is. Transportation, AI, and defense are simultaneously undergoing fundamental transformations. Electric vehicles are reshaping the global automotive market. Drones and unmanned systems are rewriting the rules of defense strategy. AI is unlocking new capabilities for every business and person on the planet. These extraordinary developments all have one thing in common. They all need better batteries. We are positioning our organization to take advantage of these technology transformations. QSDC is working to capitalize on exciting high value opportunities in the AI data center market, QSAS is engaging in customers in high value aerospace and defense applications. With QSEV, we are advancing automotive commercialization with our 4 top 10 OEM customers, including the newly announced Honda partnership. The Eagle Line is ramping up to enable increased customer shipments in the second half of the year. We are investing in future technology roadmap with larger format cells and more in the pipeline. There is much work still to do, but our team has the talent and tenacity to overcome challenges as we industrialize our technology to make the most of these transformational opportunities. Thank you for your support. We look forward to sharing more updates in the months ahead. With that, I'll turn things over to Kevin for a word on our financial outlook.

Thank you, Siva. GAAP operating expenses and GAAP net loss in Q2 were $106.1 million and $98.2 million respectively. Adjusted EBITDA loss was $64.2 million in Q2, in line with expectations. For full year 2026, we reiterate our Adjusted EBITDA loss guidance of between $250 million and $275 million. A table reconciling GAAP net loss and Adjusted EBITDA is available in the financial statement at the end of our shareholder letter. Capital expenditures in the second quarter were $4.6 million. Q2 CapEx was primarily composed of investment into our technology roadmap and associated facility spend. For full year 2026, we lower our guidance for CapEx to be between $27 million and $37 million, reflecting capital discipline and cost savings on specific capital projects. We set a public goal for customer billings in 2026 to exceed customer billings in 2025. As of today, we have achieved this goal. Customer billings in Q2 were $10.8 million. Total customer billings through Q2 '26 are $21.8 million, exceeding fiscal year 2025 customer billings of $19.5 million. Customer billings as a metric represents the total value of all invoices issued by QuantumScape to our customers and partners in the period, regardless of accounting treatment. As a reminder, customer billings may vary from quarter to quarter due to fluctuations in activity as we progress through various phases of engagement. This operational metric is not a substitute for revenue under US GAAP. We ended Q2 with $859 million in liquidity and will remain prudent with our strong balance sheet going forward. As always, we encourage investors to read more on our financial information, business outlook, and risk factors in our quarterly and annual SEC filings on our investor relations website.

Thanks, Kevin. We will begin today's Q&A portion with a few questions we have received from investors or that I believe will interest investors. Siva, we are now halfway through 2026. What proof points should investors evaluate to know if QuantumScape is tracking to our annual goals?

Sam, goal number one is to demonstrate scalable production with the Eagle Line. Taking a unique technology on a highly automated process from the ceramic separator to the unit cell to the fully assembled QSE-5 that meets customer requirements is a significant challenge. We are making strong operational progress and remain on track. Goal number 2 is to advance automotive commercialization with QSEV. We are working with 4 of the top 10 global automakers, including our new deal with Honda. Adding another paying customer is a big step forward in our commercialization efforts. We also updated the PowerCo collaboration and licensing arrangement with milestones for automotive cell development, and we shipped cells to an additional automotive OEM in this past quarter. Goal three is to enter into new high-value markets. We are very excited about the progress we are making in these new business verticals. We have appointed talented leaders to run QSDC and QSAS. QSDC is engaging with OEMs and data center architects to provide solutions for this fast-moving market. QSAS has shipped QSE-5 cells to a major American defense prime, and we are engaged with global customers in aerospace, defense, and other advanced applications. Goal 4 is to go beyond QSE-5 with our future technology roadmap. This quarter, we showed larger format separators from Cobra, which enables higher energy density cells. We have also shown new safety data this quarter with thermal stability, external short-circuit, and nail penetration results that are particularly outstanding compared to competitors. We are committed to sharing more on our technology roadmap later this year.

We're making the progress Siva discussed toward our technical and commercial goals while remaining disciplined stewards of capital. We have reiterated Adjusted EBITDA guidance and total customer billings for 2026 are already higher than last year.

Siva, we are now organized into three business verticals. What is our approach to serving automotive and non-automotive markets?

We see broad-based demand for better batteries across the board, AI data centers, aerospace, consumer electronics, medical devices, defense, and many other applications. We believe they're all capable of being served by the QS technology platform. The benefits of energy density, power, safety, U.S. supply chain, and workforce all resonate with our customers. For the QSEV vertical, our automotive customers all have development pilot lines for batteries and high-volume manufacturing capabilities. For QSDC and QSAS customers, this may not be the case. They are fast-moving, the number of customers is larger, go-to-market has different channels, we may involve ODMs, and product integration looks different with more opportunities for value creation. These new verticals increase the size of the market, strengthen the fundamental technology platform, and benefit the QS ecosystem, which adds value to our customers across all verticals.

Siva, what should investors take away from the recent updates to the Volkswagen and PowerCo relationship, and how do they reflect the progress being made towards commercialization?

Sam, the relationship with PowerCo SE continues to be strong, and the 2 teams are working closely together on-site here in San Jose. The overall objectives of the collaborations are unchanged. Industrialize the QS technology and transfer the technology to Volkswagen PowerCo for automotive commercialization. Over the past 2 years, we have continued to update and revise the scope of work as we progress this relationship. The updated scope of work includes milestones related to larger form factor cells, as well as technology elements from QuantumScape's advanced product roadmap. We look forward to sharing more on that soon.

From a financial perspective, customer billings under the 2025 VW PowerCo collaboration agreement represent a cost share for QS expenses incurred under the agreed scope of work. Under the new scope of work, we've tied payments to deliverables aligned to our product roadmap. Additionally, we eliminated MotoE related milestones, given that the organizers put that race series on hiatus. As a result, even though the total possible payments under the agreement have reduced from approximately $131 million to approximately $75 million, we now project significantly reduced expenses for the project. We forecast a net neutral financial impact in terms of cash when compared to the 2025 scope of work. I'd refer investors to the 8-K on file for more information.

Okay. Thanks so much, Kevin. We're now ready to begin the live portion of today's call. Operator, please open up the line for questions.

[Operator Instructions] Our first question for today comes from the line of Gabriel Gonzales from UBS. Your question please.

Firstly, on the updated PowerCo agreement, the updated milestone framework appears to have shifted away from execution-oriented targets like battery cell delivery and validation over the next 2 years towards cell development and technology-related objectives. Can you just help us understand the reasoning behind that change? Should we view the absence of the earlier milestones as a change in expectations regarding their timing or achievability?

The Volkswagen PowerCo agreements, we update them every year. We have done that 3 years in a row. As the relationship progresses, we update it based on the milestones yet to come. We have done that consistently. The relationship is very strong. Our objectives remain the same. This reflects that we will be paid based on the milestones that we both have agreed that we need to achieve, which are aligned with our technology roadmap. For instance, the larger format cell, the future technology milestones that we need to get, et cetera. There is not anything philosophically different about the objectives of the joint program.

Got it. Okay, thank you for that color. Kevin, you mentioned a neutral impact cash flow, the lower expenses for the project offsetting the lower cash inflow. Is there any impact to the $130 million royalty prepayment from PowerCo? If not, what's the progress update there? Should we expect those funds to come in this year or next year?

Great question, Gabe. You're correct. The $130 million prepay is unchanged here and is released by technical milestones and alignment on the form factor. There, as we laid out in the letter, we've made nice progress as we've outlined with the Eagle Line and also with the demonstration of those larger separators coming off of our Cobra line.

Our next question comes from the line of Itai Michaeli from TD Cowen. Your question please.

This is Justin on for Itai. A super quick question. You guys highlighted, QSAS, the shipments of the QSE-5 cells in the quarter. I guess, can you help us understand maybe some of the nuance around that shipment? Was it just natural ramp cadence associated with the Eagle Line? Is there any kind of the deferral of milestones that might have freed up some incremental capacity that allowed those shipments? Just trying to get a better understanding, I guess, of maybe how that ramp is kind of progressing on yield, line times, cycle times, and any improvements or color you can provide, at least on that AI model update for the reliability improvements that may have contributed there as well.

Justin, great question. The answer is yes. The Eagle Line obviously is improving in productivity. As you would expect, taking a brand-new technology, a very unique technology, into a new highly automated line and getting the product out to meet customer demands is a difficult challenge, and we've been doing very good progress on the Eagle Line, through the last 3 months since we installed the line in February. The increased volume allows us to. There are three major benefits out of this. A, clearly it gives us more samples to ship to customers. B, the higher volume allows us to learn rapidly. Three, the Eagle Line itself serves as the basis for the technology transfer for the higher volume lines later on with our customers. This naturally allowed us to be able to ship this out of the Eagle Line for a customer demand in the U.S. defense frame.

Super helpful. Maybe on QSDC while we're on the topic. How far away do you kind of envision the initial shipments of samples into that vertical? Obviously, there's been progress in the quarter. Just trying to get an understanding of maybe the timeline as to when samples start hitting them and how quickly the conversion rate might be relative to the QSAS side of the business now.

QSDC, as you all observe, is a very fast-moving business, and the demands are going up rapidly, and there are significant players involved. We are working closely with data center architects and ODMs that supply to these architects. We are working closely to develop designs that can be delivered to these ODMs to integrate. It also allows us to do higher value in our integration in the product. This is all coming together very rapidly. We have a new General Manager for the business. Shahar Noy is getting ramped up on this very rapidly.

Perfect. If I could sneak one final one in before jumping into queue, more mechanic-wise. On the Q2 billings of the $10.8, how much of that was PowerCo? I guess, just trying to square up maybe the $75 in context of, I believe it was $20 as of the end of Q1. Just trying to figure out the incremental to see how much is left, at least on that milestone update that you guys provided from a payment perspective.

Thank you for the question. They're certainly part of the mix. We don't, as practice, break out the billings into finer detail. I would mention that as part of our annual goals, we have a number of customer-facing ones. One is to advance automotive collaboration. You have the update to Volkswagen today. You have the Honda relationship. Further success there means advancing those relationships and adding more. Also, the letter goes into detail with making progress in other customer segments, including the AI data center and the advanced solution spaces. The goal is to advance those relationships as well, and you get a broader and broader portfolio of customer activity across that metric. Yes. One other brief plug on the Eagle Line, we did put out a video today between our COO, Luca, and his VP of automation and hardware, talking about the importance of the line and what it meant to bring it up. Also in the quarter, to the extent there's interest in the Data Center piece, we do have that new GM talking about the Data Center piece, the segment that we're targeting, and some early details on go-to-market.

[Operator Instructions] Our next question comes from the line of Laisha Zaack from HSBC. Your question, please.

Hi, Siva. Hi, Kevin. Thank you so much for taking my question. I just wanted to touch a little bit on the new verticals. Do you have any plans to expand the business into other different verticals? I'm thinking about consumer and how the technology you're developing fits well into it. I'm just wondering if the new business verticals like Data Centers and Aerospace and Defense will be your main focus along with Automotive, or are you open to exploring other opportunities?

Laisha, good to hear from you. Thank you. Yes is the answer to that question. We have clearly separated out QSEV, and we have clearly separated out QSDC, which is the data center business. The advanced solutions business explores all of the other opportunities, including aerospace, defense, medical devices, and consumer electronics, and other interesting areas. We do see substantive opportunities for the QS technology platform in many of these, particularly the QSFC form factor. The existing product can be shipped into many of these products, so we are actively exploring these opportunities as well.