Stora Enso Oyj (STERV) Earnings Call Transcript & Summary

Good afternoon, everyone, and welcome to Stora Enso's teaching in Lignode, Making Batteries out of Trees. I'm Ulla Paajanen, Head of Investor Relations at Stora Enso still until the end of Q2 results, Q3 announcement of results. This event is being recorded for internal purposes. If you do not want to be part of recording, please feel free to leave the Teams' meeting. Our team presenting and taking the questions today are Markus Mannstrom, Head of Biomaterials Division; Lauri Lehtonen, Head of Innovation at Biomaterials; and Stephan Walter, Director Emerging Business Biobased carbon. [Operator Instructions]. I will then read them to the audience. We will keep the participants' lines muted the whole event. The slides will be available on our website after the event. So now I will hand it over to Markus. Markus, please go ahead.

Thank you, Ulla. And welcome also on my behalf. It's truly fascinating that we have come this far on the road. As we all know Lignode is one of the biggest opportunities that we have at hand. We will today provide you with the teaching on what is really Lignode about. We will also talk about how do we believe we can scale up this business opportunity. But before I hand over to Lauri and to Stephan, let me share a short, very short story about our R&D innovation work in the division. Innovation reviews since 2016, 2017. And indoor innovation review in 2018, just before Christmas, Stephan and the team had made a small surprise for us. I have always been pushing for -- make demo straighter, show something visible. Well, just before Christmas in 2018, Stephan and the team lit the first small Christmas tree that was then energized by the first battery made with our anode material ever. And to everybody's surprise, this small Christmas tree, with some small LEDs, it was shining bright still until Easter in the following year. So with that, I hand over to Lauri. Please take the floor.

Thank you, Markus. What a nice story. Thank you. So with this, before we want to start and go deep into the teaching, I think we should start with the welcome movie to give you guys a little bit of a flavor and a big picture. So why don't we kick there? [Presentation]

Wonderful. And for those who didn't have a good enough connection, this video is available on the website, and we'll share the information later on where the link can be found. So as we heard in the movie and our little video that the world is electrifying. And a lot of this electrification is driven by the electrification of mobility, so electric vehicles. And this electrification of the world is driving a lot of demand of new technologies and especially in the centerpiece of this transformation is the battery and the battery technologies and the development of that value chain is taking huge, huge leaps. And to an extent that we have more than 200 giga factory projects announced or in production stage globally that right now, and these projects and giga factories needs a huge amount of raw material. So the raw material demand is significant. The typical giga factory, let's say, 20 giga, what's -- needs about 20,000 tonnes of anode raw materials, which we will be talking about today. This is a significant amount, especially when multiple the amount of giga factories that is currently in planning. With the estimation of the corresponding to potential volume of maybe more than 3 million tonnes in the next 10 years. So the demand of raw materials, demand of batteries is increasing significantly. And this is a transformation that's happening. And I think we have a lot to offer in this transformation. In addition, what's happening is the sustainability demand in this value chain is increasing. In fact, driven by the fact that 50% offtake upfront carbon footprint of an electric vehicle comes from the battery itself, there's a huge demand from the value chain to look at more sustainable solutions to address that challenge. With this, I'd like to start telling you how do we do this and get a story on where do we move and where this all started. So Stephan, can you take us forward with the basics and what are we trying to do here?

Sure. Sure. Thank you, Lauri. Ladies and gentlemen, to understand how we connect to this opportunity of the battery industry really taking off and going into all sectors of industry and then, of course, having electric mobility as the major driver, we need to take a look at the technologies, which we will do in brief, and then explain how we do that from tree fulfilling our mission that everybody that is done from oil and fossil-based raw materials today will be made and can be made from trees tomorrow. So the next slide will show us the basic principles of a battery. Now in order to store electrical energy it usually requires two sides, and those are usually labeled anode and cathode, which are separated by a porous film or sheet through which the ions can travel, but the electrons cannot travel. So important to say cathode on one side, that's a material that is a lot talked about, and it's about the metals in it. Most batteries today still have a lot of cobalt in it. There's trends to also mitigate those issues and challenges. And on the other side, most batteries still today consist of carbon material, which then forms the anode. On the next slide, we will see the basic principles in the functionality of a battery, where the both materials, the anode material on one side and the cathode material on the other side, are basically hosting the lithium ions. And during charging, the lithium ions are migrating into the anode. The anode needs to take up these lithium ions. And during discharge, they are migrating back into the cathode material. The electrical current flows then through the connectors and driving whatever device is powered, of course, at best a nice fast electrical car or any other device really. And this process of the moving of the ions is a key, what we are going to look into in a second, why our material makes a lot of sense in this application. The next slide, we see here some aspects on the current material, roughly 90% or even more depending on which statistics you're looking at use the graphite anode today. Graphite is a material that's been used for this application for decades and it's been developed and out developed for a while. There are some problematic aspects like with every phosphor-based material often is produced under less than the satisfactory conditions. It is made from the fossil fuel. If there's a lot of CO2 generated, when it is generated and the other materials are mined and ripped from the ground and then they need to be cleaned. And also all those processes are often not as clean and not as we would like -- then technical parameters and performance indicators, which are being looked at in many, many ways and also in competing concepts. One of them is the ability to accept the lithium ions in slow and fast charge applications. So in a short time, lot of ions that need to be taken up. And those factors to improving will be our angle of attack with our materials. So in the future concept in the next slide, you see that battery using our material, it's going to look very much the same. So on the left side, you see the concept that has a graphitic carbon at the anode to accept the lithium ions during charging. We will bring in material, we have a material, we call it Lignode, which can accept the ions and which can replace either fully or in parts the graphite that you see on the left side in conventional concepts. Lauri take us into the world of Lignode, please? Thank you.

So we will be generating a product that's called renewable hard carbons. So what are the -- What are these renewable hard carbons? So if we look at the next slide, our hard carbon that we manufacture is made out of lignin. Lignin -- the tree consists of about 30%, 40% of lignin and traditionally this lignin in pulping process is actually used in as a fuel and as a biofuel. And this we have generated the technologies to extract this lignin and then take the lignin into value-added production. There are millions of tonnes of lignin produced in Europe alone, and this is circulating a lot in the pulping systems. And there's ability to extract more and more of that. What's wonderful thing about this is when we're doing this extraction, we're not increasing the amount of trees that have been used, but we're putting more value added spin to it and adding more features and benefits to a very valuable raw material. And what's wonderful it's coming -- it's a raw material that's coming from traceable and certified resources. So we have sustainable forestry practices that yields eventually a lignin that we can value add into higher-value products. And this is what we've created here. So for the past, I would say, 7 years, there has been significant research and development into this concept. And we have eventually developed a technical advanced hard carbon. And this is a replacement of existing graphite in the anode of batteries that have significant performance benefits. They enable a faster charging and discharging, higher cycling stabilities and perform better at low temperatures. And they can be mixed or they can be used as alone. So with this, Stephan, can you tell me a little bit about why -- why does it do this?

Yes, of course. So if we look into the mechanisms on how energy is stored in the lithium ions are stored, it basically all depends on the structure. The next slide will actually show you this in a simplified illustration. And on the left side, you see the graphitic carbons, which consists of these very parallel layers. That's the very definition of a graphite. And the lithium ions migrate out from the sides into the layers and sit in between those stacks. The process of intercalation is basically the secret of why we can store energy, particularly in these graphite carbons. These have shortcomings. Lauri has named them in the introduction here that the migration in and out goes via 2 sides, left and right, basically. And the intercalation also has its challenges at low temperatures. Our lignin-based hard carbon, which is resembling hard carbons that the industry has known for years and years, just not bio-based on lignin, has a different structure. So the graphite layers are different. The crystalline structure is different, which will lead to a different performance. And incidentally, it brings a lot of this faster movement of ions and a higher degree of freedom to move in low temperatures. That translates into the fact that our materials will allow our battery to charge faster and also to discharge faster. So you have more power in a short while that you need out of the battery without any problems. So the limitations are smaller. And as everybody that has looked into driving an electrical vehicle here in the Nordics may know, in the winter, electrical vehicles have a smaller range. And particularly when you start up, the ranges and the battery will actually be depleted quite much faster. Our materials bring a solution to actually improve that performance. And that's where we see the major tech angle for us into this market entry point. If we go to the next slide, we see a short run-up of the secrets of why this material shall and will have a place in the market. And as a matter of fact, it is existing in the market. Cell makers that we are communicating with know this material. They know how to use it and they know and appreciate a lot of these beneficial properties. Looking at this chart, which in itself can take very long to go into every detail, runs up again the fast charge and fast discharge capabilities often referred to as so-called C rates. Then you see the low temperature performance where we bring benefits, the electrolyte facility, so the -- basically the choice of the electrolyte that hosts and that carries the ions back and forth inside the battery is wider and allows them to build different chemistry compositions for our customers. The cycling stability is, therefore, that means allowing more cycles with the same battery before it actually degrades. And then there are some other factors like cell voltage and the energy densities both volumetric as far and as gravimetric where we do have challenges. Our material is not as dense. It is more open. It allows more movement but with this comes, of course, some downsides, which we don't want to hide and it's very well-described in literature and the cell makers know this. And here, we see that even for applications where the energy density is a key factor like the battery in a car, you can mix the material of a regular, standard graphite with our material, and you get benefits from both sides. So you're adding 1 plus 1 and you're getting more than 2. So this is where we really see a great potential going forward. So where is all this happening? If we look at the next slide, we see a well-known picture of our Sunila Mill in Southern Finland near Kotka, which is one of our pulp mills in the division. where the Stora Enso has invested in building a commercial lignin extraction unit many years ago. And we are currently, and we have announced that in the Q2 results publications that the pilot production for Lignode is going online there. And we call it a pilot operation because the amounts we can produce there are good for R&D and customer sampling. However, what we want to stress here, it is basically a miniature factory. So we will be producing the Lignode, and we are producing samples in the very same set that we are currently projecting to be used in a commercial setup. It is serving as the blueprint for the next commercial plant to be taken up to be supplied with the commercial lignin extraction volumes. So our pilot plant in Sunila will bring us into the ability to build more batteries, to test more, to develop the product with the customers and make us actionable in creating that market opportunity. So Lauri, I think this is a good point to sum up. But again, we have 2 more slides.

We move into the summary slides and take a look at the -- what we have here. So in summary, on the next slide, we have really a sustainable, competitive and scalable opportunity here. And I'd like to recap some of the things that you just heard. So sustainable. We have an active anode material into a battery value chain that is based on lignin. And lignin is a renewable bio refinery product from trees. So providing a very sustainable starting point. In fact, our target is to create the most sustainable and lowest impact anode material available in the market in this value chain. And in fact, we're using effectively, the tree. So taking something that has been there and adding value to it and putting it into value chain that needs these benefits. And what we bring in the value chain is a superior traceable raw material that has a very good, sustainable footprint. Stephan, it's also competitive.

Yes. The next slide, please. It's not only sustainable, but it is bringing advantages that the market wants to have and is asking for. Our hard carbon can replace the graphite fully or it can replace the graphite partially. And our customers are then able to dial in exactly the properties that they wish for their systems. And it could be that they are looking for the fast charge rates, it could be that they're looking for the cycling stability. It could be that they're looking for the low temperature performance that they want to offer the customers at the end application, they want to use this. Our material comes with tunable properties as far as that goes and is, hence, a very competitive solution in combination or in replacement of the fossil-based materials.

Good. And in the next slide, it's also highly scalable. So there is a lot of lignin in our existing partner systems. It can be extracted. And in fact, in Sunila we are already extracting that significant, and we've already invested into pilot plant that is taking us in the pathway to a scalable process. In fact, this can be scaled to a lot more because there's quite a bit of lignin and we're faced with the market that is growing significantly with demanding millions of tonnes of anode materials eventually in the next 10 years. And on top of that, it is addressing the needs of a very important future supply. No not really happening today. In Europe where we want to drive self-sufficiency in battery supply and anode and hard carbon-based Lignode will be part of that solution. So how do we do this? And how do we move forward? So in the next slide, partnering is a key and partner is key to get speed and partner is key to become a credible player. We're currently looking at the value chain and looking at the value chain players that can actually come and help us to speed up, and we're looking at active -- other active material players who sell giga factory players and OEMs to see what potential partnership we could create in this and inviting other players to help us to speed up. Speeding up has an important 2 dimensions to get market acceptance and speed up the qualification processes and also the technology scale up of the manufacturing processes. And with this in the next slide, with smart partnering it's -- we believe strongly that it's enabling a faster scale up to reach towards our ambition. And the ambition is to -- with the partnerships together, to create potentially 5 anode mills in the next 5 years, corresponding in the range of 80 to 100 kilo tonnes of annual production, which will correspond to roughly 50% of the market share in Europe and has potential ambition of EUR 1 billion of sales and a very healthy EBITDA margin projected. And estimated investment at this stage in this in the range of EUR 1 billion to EUR 1.5 billion. Need to stress that these are current estimates and based on assumptions today. We're moving in this journey forward. We're operating a pilot plan, we're working with the customers. We're learning day by day a very rapid speed. And with partnerships, we will speed that learning up a lot. In the picture, you see our Nordic mills that are initial existing base that serves as a basis for the initial locations, and that's a picture of all the mills that we have. And mills outside of Stora Enso base, of course, are also a viable candidates in the future for suppliers. So what's the pathway to this ambition? In the next slide. So how do we do this? So single production unit time lines from design to production traditionally is 4 years. We feel that with partnerships, we can speed this up quite a bit. In fact, the design work has started and early 2021, then we're on the pathway and with smart partnering right partners, we feel that we can significantly look at shortening those time lines. Then qualification processes with battery manufacturers and OEMs can take up to 3 years or even more. Then the partnering again here brings a very, very viable role in shortening those time lines and getting through the qualification process. So our current plan includes concurrent construction of several production sites in the partnership setting with the different value chain partners. And the scale-up is built in the standardized 20-kilo tonne anode material units. And with time line, we're looking at building 1 to 2 plants every year after piloting phase, which is estimated to take 1 to 2 years. With this, I want to thank you for participating in this teach and I will hand it back to Ulla.

Thank you, Lauri and Markus and Stephan. And we have here a good bit number of question. So why don't we start from the last one because they were asked when all the presentation was done, which might be more relevant than the first ones. So the first is, who is the main competitor for this technology, given you mentioned 50% market share in your presentation?

So first of all, the 15% market share. So that is market share from the total anode market. So there's different anode manufacturers that are producing anodes so synthetic and natural graphite manufacturers, and that's the competition.

Okay. Good. Do you have ongoing qualification process with battery manufacturers now?

Maybe I can comment that. So from the early days of this project, we've been interacting with big renown cell-making companies as we are stopping basically with our area when the active material is created, but the actual validation testing and the feedback on how these materials run. We've since basically 2018, '19 have been creating with entities in the market that actually manufacture the cells and test the cells. And today, we are in touch with a number of big players around the globe. But at this time, of course, we are not revealing or we cannot talk about which partnership or which company we're really working with in detail. But yes, we are working with the relevant players in the market.

Yes. And maybe build on that, Stephan, is the pilot plant that we've -- in operation now it's a key part of this collaboration with the customer base, and they're anxiously waiting for our samples from that scale on...

Thanks, Stephan and Lauri. So next one, would you start constructing the platform on your own without your partners?

Sorry, could you repeat the question?

Would you start constructing the plant on your own without partners?

I can take that. I mean, as we have communicated and as you heard from the presentation, we see a huge opportunity in partnering up. Given the interest that we see around us, we will explore this partnering avenue fully for the near coming time. In case we have to then change direction, that kind of decision will be taken later. But for the time being, we believe that partnering is key to scale this up fast.

Okay. Thanks, Markus. Next one, what could be the optimal mix of Lignode and graphite?

We have to take that. So that question really can only be answered by the cell maker and by the OEM that wants to use that product. So there are currently concepts that are ranging between 50-50 to levels that actually can go as low as 10% addition of Lignode. We also see concepts where they want to go for 100% Lignode replacement. So it really is case dependent, and it actually drills down to levels of what type of car, what size of car, is it a last-mile delivery vehicle? Or is it a passenger car that is driven in a completely different manner. So that could be ranging in the combination concept and the mixing between 10% additional level of up to 50%.

Okay. And next 1 to Markus, how large a share of the partnership economics would you anticipate for Stora?

Well, I think in a good true partnership, you work with very like-minded partners that have equal interest in the consortium or the setup that you are developing. So you could easily think that if we would be 3 partners, we would share the pie in 3 pieces. However, at the end, this is always subject to what is each partner really contributing with. So if the contributors are on the scale where we find ourselves, i.e., major contributors, of course, then we are ready to share the cake in equal pieces. If you have partners that bring in something less, of course, then it's a different story. From the experience that we have from other partnerships, we have learned that there is also a roof, especially at the early stages of scale up. So I would say that partnering with 2, 3 like-minded, not more than 4 is ideal setup.

Good. Thanks. Do you have any initial partners already? Or will this require the pilot phase to take place first?

I can take that. I'll leave that open. It's -- I can't talk about the initial thinking that we have going to review, but we have things go and moving towards that. Answering question is pilot and piloting phase needed to do before partnerships are created, that's also to be seen and it's dependent on the dialogues that we will have. So I'll leave that on an open end and not make a judgment on that yet.

Okay. Good. Thanks. The next one is then is the guided 50% EBITDA margin now. I think you have mentioned 35% EBIT margin earlier. So how do these 2 EBITDA and EBIT margins link to each other?

I think it's very important to understand the role of these 2 measures. And EBITDA is key for anybody entering a new market, especially where you come in with something that substitutes something existing. And we have now a track record in our innovation community to incorporate the logical understanding and simulating and really simulating with tools the assumed future production cost from a very early stage of the innovation journey. And that is really a benefit. You have to understand what is the share of the cost of the raw material that you have been processing. What are the share of the cost of the actuaries do you need? And in most of these new type of businesses that we look into, especially when we talk about carbon-related products, what is the cost of electricity and what is the type of electricity that you are using to process this. And this is all then focusing on understanding your cost competitiveness against existing materials. If you look at the other lever, and think about this from an EBIT perspective. In a fast scale up business, I find EBITDA much more relevant than EBIT. We can always steer at the end impact, we end up with a certain portion of amortization annually depending on where we end or how far we want to go and how fast we want to go. So we have a strong focus on making ourselves cost competitive by the same analogy we have in pulp cash cost scheme.

Good. So the next one is what kind of partnership structure do you plan to set up a 50-50 JV or several JVs or what? I think you have certain touching up on this, but maybe you can sort of clarify this even further.

Well, with all simplicity, I think that the shareholding structure leading to a joint venture where we have a couple of partners sharing the cake. I think that is the way forward using the example of sharing the cake in 3. For the moment, we also quite a lot focusing on setting up one structure to commercialize this, not several different.

Okay. The next two questions are relatively related. So I read them one after another. So what are the benefits of renewable hard carbon compared to silicon-based anodes? So next silicon is also promotes as an anode material, how would Lignode fit in here?

You want to look at the question?

I will gladly take that. And it really depends on how much time we have to go into the details now. Yes, it is. Silicon is one material that can also host the lithium ions and it is going into anodes today. Large carmakers of electric vehicles are using batteries that have a certain additional level of silicon today, which then would say it's a replacement of the graphite in order to boost the capacities and to change the properties of the entire cell. And that's a trend that we also would expect to continue. We don't claim that, that we understand and will turn around the entire market. The energy storage market exploding will also lead in our perception and what we hear from the market in a diversification of concepts, and we see this all over the place in the discussions with the customers, but also in media. Now coming back to the silicon and how does that work together with Lignode. Currently, we have indications and our basis and our hypothesis of going forward is that it works just as fine as graphite with the silicon. So if you look at lower addition levels, that would be a concept. And then if you go into silicon heavy concepts that will be dominant or completely silicon, of course, they are replacing also the graphite completely. Then the Lignode would be either only a minor component or may not even be needed. However, when we look at the forecast for the next 10, 15 years, we are pretty confident that they're carbon dominated, and that means graphite and Lignode in the future will be a very large share in the energy storage market. And there is a place for more than 1, 2 or 3 solutions in the future going forward.

Thank you Stephan for the answer. Good. Are we ready for the next one. I see it is. You told that you aim to gain credibility in the battery raw material market. What do you mean by becoming credible? What does it take?

Good. That's a very good question. It takes many things actually. And setting up a new business is always going in the value chain that you have not participated before. So it gets in credibility related to product performance, securing supply and making sure that you're serving your customers as needed. So the basic aspects of business. And I think partnering will bring dimensions into that equation that we can speed up and not build everything ourselves. So a combination of many things.

Good. Can you quantify the charging speed benefits?

That's a really good question. And I cannot say a straightforward value that would satisfy by a number. It really depends on the entire setup and design of the battery cell. It consists of so many of components and balancing acts of different ways of building that cell. So that would have a much, much larger influence than the performance of a material that would replace one thing. What we are, of course, going for is relevant changes. So if it is only cutting your charging time by 10% or anything like that, then it may be not satisfactory. But at the end of the day, that value parameter, that performance parameter would have to be discussed with the cell makers. What we do know is that they want to have Lignode type materials and Lignode for exactly that application.

Okay. Thank you, Stephan. So the next one is what are the production costs for renewable hard carbon anode and graphite and silicon? Envisioned margins are much higher than current anode margins.

That is something that we are not in a position of disclosing right now, of course. And as I said, this is a tool and a process that we are working on. And one day, it will also be known reality.

Yes. And if I may add one thought, which I think is very important to say is that Stora Enso has been a pioneer in commercial extraction of lignin and raw materials are a great part of that cost structure. And while we are not ready to discuss the cost structure or the fluctuations in the competitors' products, we see that we have our costs fairly good under control because it is lignin that we are extracting. That is the integrated partner, I think adding to what Markus said, while, of course, this is something that's unfolding, we are quite confident in being competitive here.

Good. Thanks, Stephan. How much does the carbon footprint or regular car go down with this solution?

I can take that just to change please. Yes. It's one of those things. It depends on the system quite a bit. It depends on the replacement rates and so forth and it ranges in those. And at this moment, it's such a specific benefit of the cell manufacturer and the OEM that we don't want to disclose those right now and the extent. But 50% of the battery is -- 50% of the carbon footprint a car is in the battery and raw materials are a significant part of that carbon footprint.

Then the next question is a bit of a detailed one so be careful listening. So just to clarify, is the opportunity of EUR 1 billion of future Stora Enso sales with the 50% EBITDA margin. So an incremental EUR 0.5 billion EBITDA opportunity? Or is it the total opportunity for the partnership split 2, 3 ways implying incremental EBITDA to Stora Enso of EUR 200 million to EUR 250 million?

Thank you. The opportunity that we envision here and the opportunity that we calculate on is the total opportunity, which is then to be shared with the partners that are participating in this opportunity. And just to clarify one comment here when the opportunity was presented, the opportunity then would be in 5 years, 15%, 1-5% of the market, not 50%.

Okay. Thanks for the clarification.

But of course, we have to remember that the world doesn't end in 5 years. And we can assume that the speed of increase in the raw material need for the following 5 years is going to be faster and bigger than these coming 5 years that is very much supported also by legislation that we hear about within Europe for the time being, on the role of electrified vehicles versus vehicles that would still run on combustion engines.

Good. Then the next one is about the energy angle. Over time, do you intend to remove lignin from pulping process to the level of energy self-sufficiency or potentially even more than that?

I could take that also. Thank you. This is always a business case specific calculation. The role of lignin extraction and the fundamentals from the pulp mill perspective, they're going to vary a lot. And depending on the -- this becomes a little bit of an engineering stuff and explanation. But depending on the dimensioning of the existing pulp mill, you can either extract lignin with a better or a less good business case. Whenever we have limitations from a scale up in the energy block with the recovery boiler, lignin extraction is a very positive contributor and a very cheap way to also get more pulp out of the mill. Whereas in other cases, it can be the other way around, that there is capacity in the boiler part and the debottlenecking should happen on the digester or wood handling part. So there is no one answer. As we, in our division, we actually run quite a number of different lignin applications. And this might also then lead the whole discussion to another direction, the more applications we will see in the future that are building on lignin. We do biobinders with NeoLigno. We are quite far in our carbon fiber and then we have Lignode. And the more applications we see around us based on lignin as a raw material, eventually, one day are going to lead to that going to be a commodity traded by itself on its own merits. And of course, the naive investment case, again, might look different. So not really one answer here. We, of course, strongly believe that lignin is going to become a very important raw material contributing to the renewability story of Stora Enso and give us attractive new business in the future.

Good. Thanks for a very thorough answer. Markus, the next one, is the 3-year of qualification after production start, i.e., we can see it in the EV storage applications by 2028, or can some part of the 3-year qualification process run simultaneously with the 4-year ramp-up production and in which case we will not be the...

I think our pilot plant serves a very important role here. And maybe Stephan explains a little bit more on how we're going to work going forward with that.

Sure, sure. Thank you, Markus. So the qualification of a material into a battery cell is done very thoroughly and rightfully so. when you see those new EV cars having problems with the battery even or the smartphone stories that we've all maybe been affected by or at least heard it when we entered an airplane a couple of years ago. Then that's the background to that. Now the qualification cycles of 3 to 4 years before it actually commercial volumes of batteries would be going into the OEM product are overlaid with the construction of the factory. And the pilot factory, the miniature factory that we have an operation in Sunila Mill in -- near Kotka is going to be our step-stone to speeding that up, and we'll have the customers test the materials, design their systems and then there will only be the final qualification phase will be coming from the actual facility that will then supply those cell factories. So the answer is no it's not 2028, but we see this in very close timely vicinity to the commercialization of the first factory that we'll have online.

Okay. Then the next one is has Lignode being tested by the EV producers already?

And so as we've said earlier, that we've been interacting with cell manufacturers globally with our materials and with our concepts for years. that indicates the level of interaction. To this date or until a few weeks ago, our pilot factory was not operational yet. And in order to make batteries that actually can be tested by an EV OEM, we would need to be able to supply hundreds of kilograms and tons of materials for their test cells in order to have enough -- just plainly enough materials to make cells. So in short, the answer is that there is no prototype car driving around with our Lignode yet but of course, we are pushing and hoping for having that really close in the future.

Then maybe the next one would be that can the lignin be extracted from both softwood and hardwood?

Yes, it can. Then I mean, because of the chemistry of wood, there will always be some small differences depending on what kind of lignin we really extract. But there is a lot of opportunity on, for example, Yukon-based lignin as well. And as you know, in some places, you also have setups where in the same systems in the energy part in the Nordics, we are mixing birch and softwood species, which means that you would get a mixed type of lignin and also that is a potential solution going forward.

Good. Thanks, Markus. Could you please elaborate about your thinking around price benchmark? Would natural or synthetic graphite be a relevant proxy?

I'll take that. So we work on targets. We work on targets that we learned from the markets, and we look at the benefits that we can bring to the value chain. We are looking at the competitive in pricing as well as with synthetic, and we believe that the performance benefits that we can bring on our part. So synthetic graphite works a lot as a benchmark for us.

Good. Could you describe the production process? What do you do with the lignin? Could you describe the production construct? And what are the main cost elements?

Should I take that?

Yes.

Okay. So of course, we -- let me rephrase this. So turning any biomass into a carbon material is something that has been known for decades, centuries, maybe even millennia, if you want to look at charcoal, et cetera, et cetera. The basics are that you need to take that lignin, which we know as a powder material. And then you carbonize this into a carbon material of very high elemental carbon content that is the thermal treatment. And then you need to have the right particle size distribution of very few microns and also that depends on the wishes from the customers and the requirements and also their testing schemes of saying, which works best in their setup. And so we have been able to create a process that consists of multiple steps of thermal conversion and mechanical treatments, milling and upgrading the materials to the final step. And I think we have created quite a bit of know-how inside the company that also will allow us to deal with what Markus was just saying that in some other mills, unlike Sunila Mill, where we have only softwood lignin. We would be able to adopt our processing technology and steps to other lignin types because if we have learned one thing in the past years is that lignin is not lignin is not lignin is not lignin. So you have to really know your game and Stora Enso has built that position.

Good. Thanks. So the next one, are you counting on selling Lignode at a meaningful green premium to fossil graphite? Is this a part of your profitability expectations?

Well, it's a combination of many. I would answer this is a value-based pricing is a big component on this, and it's not the only dimension. There's many other dimensions like you saw in Stephan's part of the presentation, there's other benefits in this. And it will be a balance of all of those together. That is not one single that's more important than the other.

Okay. Thanks, Lauri. What amount of extracted lignin will be required for your EUR 1 billion sales assumption?

Yes, I can take that. So we're looking at the target yields of somewhere to 1% to 3% in that range or more, and that will develop over time. So 3x amount of targets, so 250,000 to 300,000 tonnes of lignin demand in this range at this stage.

Good. And then another one. What additional lignin extraction CapEx will be needed to supply your hard carbon production?

Well, the range that we gave would correspond to a range of everything that would be in that package, including the lignin thinking.

Okay. And then what percentage of your total lignin production capacity will have to be used for the EUR 1 billion sales opportunity?

So that's one of this. Like I said, there's a lot of lignin. There's an optimal way of taking the lignin out. There is a potential supply that's relatively high. This is based on the estimation that we feel comfortable of extracting out the systems without -- still optimizing the system further when we take it out. So that's how this is put over within our setups.

To fill in here, still from a scale-up and a total business case perspective, one should never exclude our peer mills in other companies that could be equally interested in providing lignin in a new value chain. So I don't think that -- from a holistic business case perspective, I don't think we can limit ourselves to the lignin that we have in Stora Enso if we go 10, 15 years into the future. We have to have at hand so much in our own hands that we really feel comfortable in scaling up to reach this meaningful position that was discussed earlier because if you try to enter a big market and a fast developing market as a very small marginal player, we don't believe it's going to work. So again, you have to see it in 2 ways. One is there should not be limitations in ultimate scale up. On the other hand, when you go out and really start to do it, you have to know what you have in your own hands and what you can really supply and commit to.

Good. Thank you, Markus. And we need to end to those words because we are running out of time here. So I want to thank you, everyone, for participating this Lignode teaching. It was a great attendance. And I hope you were able to get answers to your questions that we have been getting since our Q2 result announcement. So thank you for participating and also thank you for the biomaterials team for your contribution. And goodbye to all.

Thank you.

Thank you. Bye-bye.