Solid Power, Inc. (SLDP) Earnings Call Transcript & Summary

Good afternoon. I am Tom Maloney with Deutsche Bank. On behalf of Deutsche Bank, we are very pleased to welcome Solid Power to our AutoTech conference this year. We have all read about the headlines from the OEMs recently citing some of the challenges that the electric vehicle ecosystem is facing. Solid Power is engaged to develop a solution to meet some of those challenges. And with us today from senior management are John Van Scoter, President and Chief Executive Officer; and Kevin Paprzycki, Chief Financial Officer and Treasurer. The format for today's discussion will be a fireside chat. There is the opportunity for listeners to enter Q&A. Please, as you've been doing all day now, please type any questions into the box, and we will do our best to take them and respond to that.

With that, let's begin. John, Kevin, thank you for being here. Congratulations on a solid good quarter that was announced this week. Sometimes when we see the Street talking about Solid Power, there's a that phrase gets mentioned, that they are the only true solid-state battery company. Can you elaborate on that? What is behind that description?

Absolutely. And thank you very much, Tom, and Deutsche Bank for including us in today's conference. It's a wonderful opportunity. So the magic that makes batteries work is the electrolyte. It's how electrons move around from the various anodes and cathodes. The reason that we are the only solid-state battery company -- technology company, I should say, is quite simple. Our electrolyte is solid. Virtually every other company has a liquid or a gel electrolyte in their systems. And so that makes us very unique with regard to the advantages. The liquid electrolytes are very efficient in the current systems, but they are a safety hazard. And so one of the big advantages of all solid-state batteries, including our cell electrolyte is a safety advantage moving forward. There's also performance advantages. There's energy density advantages, charge time, potential advantages, et cetera. But that's the reason that we are the solid state leader.

Understood. There's a lot of discussion in the market about different technologies, different chemistries. What are some of the advantages of your technology in the mobility space?

So we see primarily for the consumer, increased range for EVs as well as battery life, cycle life on the batteries themselves. And then for the OEMs, we see improved safety guarantees as well as lower cost. So those are the primary advantages that we see for all solid-state batteries.

And within that, you've often described the company as having a capital-light business model. What does that mean in context of your strategy and the technology that you're developing?

Yes. Battery manufacturing is really hard. It's very competitive. It takes very large investments. There's a lot of large incumbents. The margins are tough, and, again, very capital intensive. Our technology is -- or our approach with the capital-light business model was to be a technology developer and really, a materials provider and a cell design licensee to our partners. And so we stand to have a much larger addressable market because of that. We'll not be competing directly with our customers in many cases. And we'll avoid the $1 billion gigafactory cost and just be able to invest in the electrolyte manufacturing portion of the technology.

So to a certain extent, you're more like an intellectual property company in some respects than really a high-volume manufacturer, if I understand that correctly.

Exactly. Yes. That's a fair assessment.

Okay, okay. Congratulations. You announced this week that you entered an A sample into the automotive qualification process. Can you tell us what that means and where you go from here?

Yes. Thank you, Tom. It really is a big achievement for the team. We've been working on it for years, and so it's a major, major milestone for us and for our partner, BMW. We shipped 80 A-1 EV samples to BMW over the last 2 weeks. Those units are 60 amp-hour batteries. They have 40 layers. They are approximately 10x30 centimeters in dimensions. And most importantly, they were produced using the electrolyte from our volume manufacturing facility, we call SP2 here in Colorado, which came online earlier this year, was qualified in August and is now ramping production to support our partners moving forward. So it is a major achievement. It marks the start of the A sample process for us. We do expect that we'll also have an A-2 design, an A-3 design as we move forward. We right now are working with BMW Ford as well as our other partner, SK On, to define the requirements around those subsequent designs. The requirements then will drive the timing, but we'll be able to share the timing of those subsequent A-2 and A-3 as it becomes more clear and as we move forward.

Okay, okay. Thank you. You mentioned SP2. Can you describe a little bit about that facility and how that positions you strategically?

Yes. It is our second facility here in Colorado. It is about a 100,000 square foot facility, most of which is manufacturing for our electrolyte. We also do have some advanced development laboratories here, some test facilities here as well. But it is our pilot production. Currently, we have confidence that we'll ramp that to 1.25 metric ton per month capacity by the end of this year. And then the nameplate capacity for it with a single shift next year will be 30 metric tons per year. So we can add shifts to increase that. And then we can -- always will work on continuous improvement to increase the capacities and efficiencies. We believe though that, that capacity will be sufficient through the '24 and probably part of the '25 time frame to meet our customers' demands as well as our internal development needs. We'll be looking to a third facility beyond that for subsequent volume manufacturing.

Any timing on when the third facility might break ground on that, John, at this point?

We're thinking, right? We're in the planning phases right now. We've engaged a world-class EPC firm to do some detailed engineering for us around that design. It will be a modular design, so we'll be able to create a shell and then install capacities as the market demands. And we're thinking that we break around on that in 2026.

Thank you. You mentioned some of your working commercial relationships with BMW and SK On. Can you talk a little bit about some of the benefits and the advantages for Solid Power from those relationships?

Sure. Yes, we've got great partners. It's really one of the things I think that differentiates us from some of the other competitors in the field. For BMW, SK, long-standing relationships. They all 3 are investors in the company. And we work very collaboratively at different levels with all 3 of them. Under the BMW expanded JDA, they were instrumental in helping us get to a sample that we just talked about. They actually have engineers and team members here in Colorado on extended expat assignments for years to work collaboratively with our engineers and scientists. Working side by side was really key to getting that A1 shipment out the door or shipments out the door. So we're very, very thankful to BMW for all of their collaboration and contributions. And as they bring up their world-class battery center in Germany next year, we expect that we'll be doing joint developments here in Colorado and in Germany, collaboratively across the Atlantic. So very, very excited about that. We continue to work with Ford on their module and pack specifications and the cells they have to support that. And then we're working with SK on very high-volume manufacturing and their expertise relative to existing lithium-ion capacity and production. All of those JDAs are nonexclusive. And we -- as we announced in the earnings call earlier this week, we have an objective to increase our partners as we move through 2024. So none of the existing relationships will prevent us from doing that, but they all 3 have been very, very strong partners for us, and we believe they'll continue moving forward.

Is it the case that some or all of the original JDAs have been extended? Is that also true, John?

Yes. Those 3 are the ones that are most active though. We have other lower level activity that predates some of the others' JDAs, but the Ford BMW and SK are the strongest right now.

And this is the one that caught my eye, is the opportunity to power a full-size BMW demo by 2025 still on track?

Yes, it is. With these shipments, we've now moved to the stage where we'll be doing detailed planning around that full-size demo car with BMW, with the belief that it will be out and announced in 2024. So with the shipments, with entering a sample and the feedback we've gotten so far from them, we're very optimistic that we'll have that announcement next year.

That's great. Congratulations. Just following up on that, when would you expect to have commercial supply agreements in place?

Well, we hope that the JDA that we've already talked about will transition into supply agreements naturally as we progress on our performance through A-2 and A-3, and as their individual vehicle launch plans become more firm. So we, again, have to do some more performance improvements on A-2 and A-3. But as we hit those marks next year and the year after, I believe that those will transition into long-term supply agreements.

There have been, obviously, others in the market talking about initiatives and statements, names like Toyota and [ Cadillac ]. Do you see those initiatives as a competitive threat or a validation of the commercial opportunities for solid-state batteries?

Yes. Really, the latter, Tom. We view the Toyota announcement in specific as validation of our whole approach, that we've been evangelizing honestly, for a very long time. So we actually welcome it. World-class company and the world-class providers of technology to Toyota have stepped in behind that. So we actually take it as a favorable for the overall market. It's going to be a very large market, right? The EV market is already large, it's just going to get larger. And we believe there's room for multiple winners. So this is not a winner-take-all situation by any means. And it's very common, of course, in the automotive industry and multiple suppliers for surety of supply and continuity reasons. So again, we welcome it. We think it elevates what we've been saying for quite some time, the benefits of sulfides. And so we think we're -- we believe we're in the lead or one of the leaders. And so we think we're very well positioned to capitalize on that emerging market.

Thank you. Turning to the financials of the business a little bit. You've had a good track record of meeting expectations around earnings estimates and unlike for a young company, you currently maintain a large cash balance, very little debt. How should we think about that cash balance and liquidity level for a capital-light business model?

Kevin, do you want to take that?

Yes. Yes, no, thanks, Tom. With our capital-light business model, again, that we don't need to go out and build gigafactories. We see our current cash balance as very strong and allowing us to run all the way out into the late '20s with our current balances and even longer, if we secure some financing or some of the grant funding that we're aggressively pursuing. So again, our model and our strong cash balance, we see having a long runway here.

I guess then that kind of sets up well for the next question, which is, can you discuss your decision to expand into South Korea? And give us an update on how that is proceeding.

Yes. Very excited. Myself and a number of the senior team spent about 10 days over there within the last month. And I came away very, very excited about our whole direction there. I mean the Peninsula is an epicenter for batteries and on multiple levels. You have customers there, both EV customers, you have world-class battery manufacturers there. You have equipment expertise there, just generally battery talent and the like as well as suppliers and across the board. So I really believe that it's the right direction for us. We have been successful in actually creating an entity there, so we can do business in Korea now. We have an office. We have a banking vehicle, thank you, Tom, to do business there. And during the trip, aside from meeting with potential suppliers to run our supply chain, we, of course, met with potential partners. SK, we met with them in great detail. Great feedback around our move to strengthen our position there and broaden our position. And then we even spent time with the Korean national labs and some universities to tap into the innovations and the folks that are being educated there been in the Peninsula. So after 90 days, having made that decision in the last -- the first earnings call that I had, I feel even better about it after the trip. I'm very excited about the possibilities. We're narrowing our strategy for the expansion on that island. It's going to center around a core team. We'll have a country manager. We'll have other folks that will build out a small team to create the capability there. So we're moving fast, but very excited about the possibilities that, that will bring us moving forward.

Yes. You mentioned that your JDAs are nonexclusive and you can take on other potential partners and the like. Would being Korea help for new business development with potential new customers in the future?

Absolutely. I mentioned the core team, I would envision that multiple people will be in the business development capacity on that core team, not just for Korea, but all of Asia. It gives us a good springboard to get virtually anywhere in Asia easily compared to flying from Colorado. So business development activities out of that Korean entity will be key for us immediately and throughout the coming years.

Thank you, John. Thank you, Kevin. That concludes the prepared questions that we have for you today. We'll be happy to turn it over to any questions from the audience. John, Kevin, I am not seeing any questions come in. So once again, we very much appreciate Solid Power speaking and supporting the Deutsche Bank AutoTech Conference this year. Thank you. We look forward to hosting you again next year.

Thank you, Tom.

Thank you.