QS Stock: Revolutionising Battery Tech with Solid State
Summary
Investment Theme: QuantumCape is revolutionizing the battery industry with its solid-state lithium metal technology, offering significant powertrain advantages in the growing EV segment.
Market Insights: The automotive battery market is projected to grow from $90 billion in 2025 to between $300 and $400 billion over the next decade, highlighting a massive economic opportunity in energy storage.
Company Milestones: QuantumCape has achieved a significant milestone by powering a Ducati race bike with its QSC5 cells, marking the first integration of their cells into a vehicle module and pack.
Strategic Partnerships: The company has developed a strong partnership with the Volkswagen Group and aims to replicate this model with other OEMs, focusing on a technology licensing approach to expand its reach.
Future Goals: Key upcoming milestones include putting the Ducati race bike on the track and integrating their prismatic cells into larger applications, with a long-term goal of series production by the end of the decade.
Financial Outlook: QuantumCape has extended its cash runway into 2029, supported by its expanded agreement with Volkswagen Power Co., which includes significant collaboration payments and licensing opportunities.
Risks and Mitigations: The company identifies yield improvement, supply chain management, and IP protection as key execution risks, with strategies in place to address these challenges through systematic engineering and strategic partnerships.
Next Big Idea: QuantumCape is excited about the potential of battery recycling, particularly how solid-state lithium metal technology can enhance sustainability by reducing dependency on raw material extraction.
Transcript
QuantumCape was started uh 14- 15 years ago >> with a desire to give the world a significantly better battery and it's that significant powertrain advantage in the growing EV segment that attracts um OEMs to our solid state lithium metal technology because there's an opportunity for your vehicle to significantly outperform on all of the dimensions that are important. If we have speed, if we have innovation, and we have partner enablement, we expect to win. Welcome to the show, Kevin. So, how are things? >> Things are great. Uh, talking to you today from the sunny Bay Area, uh, right in the heart of of Silicon Valley. >> Yeah, lovely. Uh, weather sounds a lot nicer than, uh, what we've currently got. I'm based in the UK, uh, in London, just by Liverpool Street if you know it. And yeah, it's time. >> I studied for six months the between the University College of London and LSC. I was kind of near the King's Cross station. Love London. I actually grew up in Oregon, so I'm used to that uh that weather vibe, though I have opted differently for the rest of my life being here. >> Yeah. Well, that's completely understandable. Um, all right. Well, let's let's get into the thick of it. Um, I want to just help, I suppose, any listeners that are unfamiliar with QuantumCape to get a better understanding of what you do and your product offering. So, give us a sense of what problems you're solving and how solid state lithium metal cells change the EV equation. It's a wonderful question. Batteries are a massive economic opportunity. If you think of automotive alone, the global market size in 2025 is something like $90 billion. I'm quoting uh Bloomberg New Energy Finance, who's uh one of the more thoughtful forecasts out there. >> That's forecast to grow uh to between 300 and 400 billion, more than 3x over the next 10 years. That's automotive alone and that's still only at about half penetration. So if you layer on all of the other applications for things that use battery today and you start to add in things that don't use batteries but would be a better product if they did, it's truly one of the largest economic opportunities out there which is energy storage. Uh QuantumCape was started uh 14- 15 years ago with a desire to give the world a significantly better battery. For us that means changing the type of chemistry that's used from lithium ion which we use today to as you mentioned what's called solid state lithium metal. And I'm I'm happy to go into some of the the the chemistry and link to the performance advantages if if that would be helpful. >> Yeah, absolutely. Yeah, I think we can come back to that. Um, yeah, I'm sure our listeners would be really interested to hear more there. I think before we do though, let's let's kind of introduce you to the listeners having introduced QuantumCape. So, I think you joined more than a decade ago. Uh, I think you became CFO in 2018. >> So, give us a sense of the key career moments that prepared you for guiding obviously an R&D heavy company and a pre-revenue company towards commercialization. >> That's right. I've been uh I was one of the early non-founding employees have been here more than 14 years which has been a joy to see the journey from does a material even exist that would enable this chemistry for the use in automotive to just two three weeks ago rolling a Ducati uh race bike across the stage powered by our cells. So that was a pretty special moment. So your your your question is what were the what were the experiences that uh well prepared you? >> I would have to give a shout out to uh back in the day my my parents. Um father worked shift work at a paper mill. Mother uh worked part-time as a nurse while raising four kids. Uh stepfather a pharmacist. They they genuine sacrifice uh for the kids to open up opportunities and also the work ethic. That's certainly part of a a startup with that that intensity and that drive and that resilience. Maybe a second thing would be the the combination of a pair of early career experiences with McKenzie as a consultant and bank capital and private equity. As a startup, you uh well, especially as a hard tech startup to be successful, you probably need to be contrarian and right. And by definition, you're doing something that no one has ever done before. for us commercial commercial commercializing solid state lithium metal and automotive and it's basically a set of hypotheses when you start out and being honest about what they are and what the largest ones are and just relentlessly driving at those and it adding structure to something that's that's ambiguous I I would credit those experiences and then the final block I did a joint degree at Stanford an MBA and a master's in science through their uh their inter interdisciplinary environment resources uh joint degree program. >> And then at QuantumCape, I've been here 14 years. I led product management for the first six or seven. I've done operations management, all of marketing, finance, and IT currently. And having worn those hats for uh portions of time helps me uh understand the different challenges and opportunities from different perspectives and to help uh more effectively work with my colleagues and uh to try to make better holistic company uh decisions in my role as CFO. >> Yeah, fantastic. I think that's really useful context and obviously an exciting journey so far. Uh I just want to pick up on that that milestone. You mentioned the GCassi race bike on stage at the recent event which we'll go into uh in more detail soon. Um give us a sense of what that demo validated. Give us give us the kind of context around that milestone. >> So it was an emotional moment. There were many of us there um to see that Ducatti race bike powered by our QSC5 uh cells. Um, as I alluded to when we started out, it wasn't clear if a material existed. Uh, if that material could be made thin and continue to function, >> could be made larger, uh, multi-layered, could be made continuously with no applied pressure, with no excess lithium. All of these things were generally thought to be at least difficult, if not outright possible. And it took going through all of those things to get here. So that was there's still uh a lot of important work to do, but nonetheless to power a vehicle in uh the very bright spotlight of the Munich Auto Show was a very proud moment. Um and it it also really embodied the wonderful partnership we've developed with the Volkswagen Group. Uh Tomas Small, uh board member, head of all group technology, was on stage when that black blanket was pulled off the V, uh 21L Ducatti Rice Bike, uh to debut their first solid state uh vehicle uh ever demoed in the group. Um the pack was done by Audi, the bike was done by Ducati, and QuantumCape together with our partners Power Co. provided the cells. And you asked uh in addition to being a milestone, it was also the first time our cells have been integrated into a module into a pack and integ and and into a vehicle. And I would say every single party that I just mentioned, learn from that experience and you'll see those learnings uh show up in the next set of milestones that we do together. >> Yeah, fantastic. It sounds like a real point of of validation then. Um I think then let's move on to kind of what's to come. I mean obviously that was a big milestone but talk to us about the next steps and the next milestones along your joint road map. >> So in that same uh Monday event at the Munich Auto Show uh Tomas Schmal laid out very clearly what the two next steps are towards the longer term goal. The two next steps is to take that Ducatti race bike and put it on the track. uh quantum scape are no compromise solution across significantly better energy density much higher power which especially shows up in uh charge time. We are these QSC5 cells that I that we that we held up and kind of uh told the world about last October when we started B sample qualification of them have the ability to charge uh in 12.2 minutes between 10 and 80% while pushing the frontier on energy density and safety. There's no finer uh platform and field testing uh context than a Ducatti bike on a racetrack. So that that's the that's uh one of the two milestones uh that's ahead of us in 2026. The other task that uh we need to do is to take our uh prismatic cell and Volkswagen would like to put it into a larger prismatic can >> so they can use it uh more universally across their brands and models as part of their uh standardization that they're seeking to do uh across their broader group. And those two steps are consistent with um our long-term goal of series production of our solid state lithium metal battery technology with Power Code before the end of the decade. >> Yeah. Okay. Yeah, I saw that VW flagged a goal to enable that commercial solution by the end of the decade. So that's that's great. Is there anything you'd like to add in terms of what internally you deem or will deem success by that end of the decade point? So certainly success will be uh tactical uh tactical goals in the year. We talked about on the Q2 earnings call. Uh one of them that is outstanding which is important is to bring up the rest of our pilot line uh here in San Jose. I'm actually sitting in our San Jose building number two which has our pilot line which we're bringing up together with uh Volkswagen's Power Co. Having hit a major milestone in June was to move to our very fast separator process which we call Cobra. All of the downstream equipment we're upgrading as well to keep up and to also introduce higher degrees of particle control and automation. Uh that's key for a few reasons. One is it produces parts for uh other demos um and learning which we'll do. Having brought up the line jointly together, it's one of the tasks of the group to create a blueprint that Volkswagen can then use when we transfer the the the technology into their factories. So, uh, tracking to those milestones, making Volkswagen successful certainly, uh, at the at the top of the list. More broadly, from a corporate perspective, we aren't a single, uh, customer company. success would involve striking similar magnitude deals as what we've done with Volkswagen Power Co. with other OEMs. We are a technology licensing company. I'm sure we'll we'll talk more about that in the business model later. But uh replicating that type of deal structure with a certain cadence uh is important. uh the other the other two things I would highlight is as a technology licensing company we need differentiated uh cell performance and we need to create that and we need to keep replicating it. So I would continuing down the road map and reestablishing and broadening that differentiation and the final thing is broadening the the the quantum ecosystem. Our goal would be for a cell manufacturer who's licensing our technology be to have a turnkey solution with the world's finest partners they can use for example to to source our unique uh ceramic component that enables the the the chemistry we've discussed >> in the last year we've announced collaboration agreements with both Marada based in Japan and Corning based here in the United States who are arguably two of the two of the pre of the premier global ceramics partners you would want in in your ecosystem. >> Yeah, absolutely. Um well, you I mean you you touched on the kind of broader OEM interest then and that was signaled at the event. Um really interesting sentiment coming out that that event. Um can you give us maybe a a kind of less abstract idea of you know the the actual problems that other prospects are looking for you to solve? Uh and do any kind of application examples spring to mind? So I'll start with automotive which is our focus and from uh an OEM's uh point of view and our our first uh our first target will be the performance uh the performance uh segment of the of the very broad automotive market. It is Volkswagen has some of the most iconic brands uh in the world between your Porsches and Audi's and uh Ducatis and Bentleys etc. Um they also have volume brands like Volkswagen, Escod etc. Commercial trucks. So a wonderful partnership we've developed with them over the last 10 years. It's not um taking a broader perspective, it's not common that you see a a significant powertrain advantage when, for example, an Audi or a Porsche would go up against a Mercedes or a BMW. And it's that significant powertrain advantage in the growing EV segment that attracts um OEMs to our solid state lithium metal technology. Why is because there's an opportunity for your vehicle to significantly outperform on all of the dimensions that are important as a um from an EV driver. You want range that turns up in terms of energy density where our QC5 844 watt hours per liter 301 watt hours per kilogram. What that means is that you can put more range in the same uh vehicle footprint without changing the rest of the car. Charge time I mentioned uh 12 12 point uh 12.2 minutes 10 to 80%. That's about half what my uh Tesla Model Y does today. improve safety in uh enabling the solid state lithium metal chemistry. We've removed two of the three organic materials from the cell that would contribute to fire and a safety event that improves uh safety. >> Uh and then the other two would be life and cost. >> So life as manufactured, we do not manufacture an anode. That's the key benefit of a lithium metal cell. We eliminate the graphite silicon that hosts the lithium ion. Hence lithium ion chemistry >> and in doing so that enables the other dimensions that I that uh I discussed but it also eliminates one of the sources of life loss. So you see greater capacity retention over life and finally cost. This is where it's beautiful and that all those performance advantages come from not manufacturing one of the two uh electrodes. So it's by removing material and the associated transformation cost that that by itself improves the cost to sell and it's on us for the ceramic component that we make to make that cost competitively. So the whole cost of goods sold is advantage and that that's something that we target and we believe will be the case as we hit maturity and scale. >> Yeah, absolutely. And perhaps we've already touched on it but keen to kind of hone in on quantum scapes mo you know is it the cam ceramic component? Is it the anodef free architecture that you just referenced, your manufacturing knowhow? What's the hardest thing to copy? >> It's a great question and all of those things that you mentioned, the materials, the process, the architecture are so tied together >> that when you change one, you end up tweaking the others. I'll give you two two ways to look at it. one, if you think about it from the broader perspective, uh, and we we we publish this in our investor um, facing deck, which is right off our website, we we plot everyone's prototype performance for lithium metal batteries because we think that's disruptive and it's a helpful point for for investors to know what have folks actually shown in their chemistry. We're the only ones who've shown what we think is automotive type performance, which we define as 800 plus cycles to less than 20% capacity degradation at reasonable pressures and temperatures with a 1 hour charge and discharge >> um with no excess lithium. Those things together no one else has done and in fact everyone is off by multiple dimensions. Um what's key to that is an understanding of how does lithium metal plate in an automotive context? Uh and what and there's many choices. What material do you use? What processes do you use? And if you combine all those things together, what's the problem you're solving? What's the material using? What's the set of processes? It's a it's a combinatorial very large space which is why it's been so hard uh to solve. So that's uh it it's really the the iterations over the last uh 14 years going through that uh with those interconnected variables um combining unique um skill sets and and people together and I would also argue that it has to be done under one roof. I don't think you could do the component itself without having a broader understanding of the rest of the cell. So I think that's been uh the the the the the key to success for us. And just as evidence of that, a as we went from batch production to continuous production to faster continuous production to even faster continuous production going through Raptor and Cobra, we were making tweaks to the architecture and to the materials at every step along the way. I don't think there's any shortcut through that type of iterative problem solving. And just as a as a final comment in terms of intellectual property strategy and protecting it, we we keep as trade secrets the things that can't be reverse engineered when you've uh taped one of yourselves and um uh investigate it. Anything that can be reverse engineered, we file uh patents against. Um because we've been first to the show, uh we've have over 300 patents and and patent applications. >> Yeah. Fantastic. Well, I think that leads me on to my next point then. know quantum scape are doing a lot are doing a a ton of fascinating interesting things but like I guess on the flip side of that how do you decide what to hone in on what parts of the battery value chain should you own directly versus where does it make sense to pursue a capital light licensing approach >> so not this summer but the prior summer we made an important decision to become a technology licensing company and along with that decision we announced BW power co as our anchor tenant The prior strategy was as a joint venture um similar to it but not the same. It has greater it would have had greater capital intensity. >> We went from a joint venture to that technology licensing uh model where our core deliverable is intellectual property to our partners. Um why did we make that choice? A few reasons. One is that that is what we are good at today. uh we have shown I think very impressive results out of our QSC5 we're very proud of the roadmap uh the process the tools the materials the supply chain that's our core competency today uh a second from the point of investors is that it's very capital efficient when we announced that we said that we removed the equivalent of a half billion dollars from our roadmap in terms of the need to raise money that came from a combination of things eliminating the need to invest in a factory uh new inflows from Volkswagen in the in the form of the royalty prepaid and al also because of the contribution of power co resources and us needing to do less actually lower expenditure from us as a company. So that capitalite nature uh we think is important and then if you fast forward to this summer we expanded that deal. That deal was up to 80 gawatt hours. It's about a million vehicles. That's a massive deal with one of the world's pre-minent automotive manufacturers, kind of the anchor anchor tenant of the ecosystem. What's neat about this uh expanded deal is now there's in addition to that 130 million royalty prepaid, there's also an opportunity to earn up to $131 million of collaboration payments where Volkswagen is paying us to do custom development specific uh to their asks. So from an investor point of view, instead of waiting for the technology to ordering the equipment, the factory to start up, yields to improve, and then off to the races, there's an opportunity for cash flows. Uh now we we said in the most recent Q2 call that the goal was in Q3 to invoice for the first time in our history, we we we talked about approximately a $10 million invoice. So pulling forward to the immediate moment a customer paying us for the technology development was is a very a very kind of potent thing and a nice signal for investors that what we're doing is important. And uh I'll use the opportunity just to take a a step back that um we've kind of painted in one of the two cash flows for investors which is that uh payment from OEMs during the collaboration phase of the business. The second of course is once the license is granted that's the in the licensing portion that's where the bulk of the economic opportunity uh is. So the the goal of the company with those two opportunities for cash flow be to strike a set of these style of deals where there's significant potential cash flow in this collaboration phase that can be a very powerful offset towards our kind of core expenses as a uh innovation focused company. And then longer term with those licensing payments there's wonderful operating leverage in a licensing business model and you can think of it so our uh CEO uh Dr. Civic Civer comes from the semiconductor space and we're effectively trying to take a page out of that playbook where you have uh fabous design companies like Nvidia, >> dedicated manufacturers like TSMC and specialized ecosystem players like ASML making components. We're trying to replicate exactly that. uh here in the lottery space you have quantum scape on the innovation side, power co is an example on the cell manufacturing side and uh Marada and Corning in those ecosystem type roles. So that's we're literally trying to take a playbook right out of the semiconductor space. >> Yeah, fantastic. I think that's a really useful analogy. Um and I think that's a nice segue then to talk about more explicitly the financials. Um I read that you extended cash runway into 2029. So what assumptions underpin that? Is it the power co milestones you've referenced operating cost trajectory or additional collaboration inflows perhaps? >> So the uh the first part of your question yes and the second part of your question would be upside. So it's the >> uh in Q2 the 800 um roughly $800 million of cash and marketable securities. The power co the expanded power co uh agreement is an input into that cash runway calculation. any further deals with other OEMs or any expansion outside of of automotive that would all be upside to that forecast and incremental cash. >> Fantastic. Okay. Well, let's have um a look at how that translates to the share price. Um so, you know, I I looked before the call. I I think QS shares are up around 179% year to date. So, fantastic growth so far this year. give us a sense of what's driving that momentum in your view and what milestone should dictate the narrative from here on in. >> A great question. If you look back, it was almost a year exactly because we're uh in just um the earnings call will be upon us uh soon or perhaps by this film. We'll be just on the other side of it. That's when we talked about the QSC5 cell. So that a the first kind of B sample of a new technology is a very big product development um milestone. So that started the last year and if you think about what we've accomplished in June we went from our raptor process which was an 8x improvement over our prior continuous uh process to our Cobra process which is an incremental 25x. >> So that was a big milestone. It's not enough for to have high performing cells. You need to have a uh a method of making at at automotive scale that we think can scale the rest of the way. That is Cobra. We expanded the Volkswagen arrangement. It went from 80 to 85 gatt hours. We added that $131 million of collaboration payments. VW got the right to certain gen 2 technology as well as the ability on that last 5 gawatt hours to uh sell it outside the Volkswagen group and that isn't limited to any application. We announced uh partnerships with both Marada and Corning, a very key uh ecosystem uh additions and uh as we discussed um our QC5 cells powered a Ducati race bike across the IIA Munich stage. So it's been one heck of a year in terms of execution. Looking ahead, I would uh look to us to go after the rest of the goals in 2025 that we alluded to on the Q2 call. That would be successfully installing the key production uh the the key cell production equipment with Power Co to bring up the rest of the line uh to continue to work on expanding commercial relationships uh as well as the first B1 sample shipments using our our Cobra cells and more broadly as we alluded to making Volkswagen successful striking other similar deals with other OEMs fleshing out the rest of the road map and continuing to work on the on the QS ecosystem. I think those would be the major categories of of catalysts I'd look to. >> Yeah, fantastic. I think you've given us a nice kind of overview. Um, and having covered the bulk case, I suppose to use the sort of investment speak. Let's have a look at the risks if you can play devil's advocate for a second, uh, perhaps you can give us up to three execution risks from here, uh, and your mitigations to those. So if you look back to what I said were things to do, uh bringing up a pilot line, taking something from a prototype, getting it to the point of transfer and then supporting uh our partners doing that transfer is the task. I think the things with that would be what does it mean to industrialize? Um I think you'd point to things like yield. I think you'd point to things like supply chain >> and I think you'd point to IP protection as being some of the big three. >> So yield, what does that look like? >> It is uh very nonsexy engineering. You paro out what are the sources of yield loss? You define, you measure, you analyze, you improve, you control, you rinse, repeat. Uh Civa talks about uh being systematic, methodical, and iterative. There aren't shortcuts. you just do it over and over and over again. Civa, wonderful CEO um has taken I'll use some liberties call it a dozen uh technologies across semiconductor and data storage and solar from prototypes into into production into mass market. All of those learning curves that you see uh technology after technology after technology you see them but they don't come down by themselves. It's that iterative type of engineering work in the background. It's difficult work. It's challenging work. But if you just if you persist at it, that's how you create the learning curve. >> Supply chain. So it is a new component. Um it has uh materials. It has equipment. Um how do we derisk that? So one path is which we do well there's uh one precursor and then one mitigate. We've mentioned before that uh we've settled on a separator that can both meet performance requirements but that is also made of earth abundant materials whose producers are found on all the major geographies across multiple different players. That's an important way to start and then we work with with multiple players um many of the most the the who's who of that sector. The number has advantage both both as a portfolio effect but they also have slightly different approaches with how they would scale it up and bring cost and automotive quality as volumes ramp up. Uh and then the third which is IP protection. So um it is somewhat contrary to IP protection to go into a licensing model. By definition you are teaching a select number of partners your special uh your your trade secrets are very hard to otherwise reverse engineer. So the strategy there is to align incentives very well to make sure that there's a very attractive business model available for both us and our partners uh so that they have the same incentives we do to both care uh for the intellectual property and for what we jointly protect together to to protect it as well as all of the contractual uh boots and suspenders. And there there's also a sweet spot with a number of partners. We want um we want some some choice for our cell manufacturers, but also we want it limited to not overly do that uh uh diffusion type type risk. >> Yeah. Fantastic. Well, I I appreciate that's harder to do than outlining all of the exciting kind of ball case scenarios. So, I appreciate that really objective analysis. Um and and kind of whilst you I think you referenced learning curves a couple of times there. Whilst we're thinking with that mindset, if you could rewrite one assumption that you held say two years ago about solid state commercialization, what would that be? >> So two years ago would have been 2023. Um for me I I mentioned that startups are all about or early kind of pre pre-commercial companies are all about hypotheses. for us >> we had a we had a hypothesis which was can a licensing model be successful in this energy storage type space so I would uh that was certainly something that was a question mark that we put a lot of evidence against uh with the VW power co type deal and the attraction of the ecosystem partners and more broadly there is a funnel in the background that we've discussed about with me many other OEMs who are interested in that type of Well, uh, and we think in a very competitive world that is dominated by a small number of Chinese lithium-ion manufacturers that focusing on a differentiated product and stacking the strengths of uh, global partners to both achieve scale and al both the scale of output as well as scale of development dollars. we think is a very effective strategy that uh if we have speed, if we have innovation and we have partner enablement, we expect to win. >> Yeah, absolutely. Okay. Well, I think that's a nice sort of penultimate insight then. Um and for anyone that's listened to the podcast before, the question that we always end with is to ask our interviewees what their next big idea in their particular field is. So, our tagline is invest in the next big idea. So, if you could just highlight one product, technology, or even innovation, regardless of how niche, within your space, what would it be? >> I'm personally really excited about battery recycling and as well as how the solid state lithium metal will help accelerate it. >> If you think about it, batteries are pretty special. At the end of automotive life, you should take them out. you should go find a second application, go use them in a second application like the grid. At the end of that life, say you choose to recycle it. All of the materials that you put into the battery are still there. So you should be able to take it and to pull out those valuable materials and over time with penetration is ultimately more and more things uh as more packs come to end of second life say a first some and then more and then most and then substantially all of inputs to make more batteries should come from recycling. So the dependency on mining and pulling things out of the earth should dwindle down. And that's a very powerful that's a that's a very powerful concept in terms of a true closed loop secure uh supply chain that's also sustainable. So that is um I'm very excited uh about and an area where solidstate lithium metal batteries can accelerate that those that are no excess lithium as we make. Um, it turns out one of the most dirty components to make when you make a cell is the anode that graphite and silicon. >> And it's also one of the dirtiest and least economical components to recycle. In fact, many approaches burn it. So the uh we have no anode. So it's only the separator which we think you can extract and reuse either grind it up or recapture the materials as well as the metals and the foil. So more of what you economically want is there. So I that's I think a wonderful um a wonderful end state that that we hope to accelerate. >> Yeah, absolutely. I think a really illuminating next big idea um on which I think we can end the podcast. I mean it just leads me to say thank you very much for joining us on the show Kevin. It's been a real pleasure. >> Our pleasure and thank you for inviting us and letting us share about solidstate uh lithium metal batteries.
QS Stock: Revolutionising Battery Tech with Solid State
Summary
Transcript
QuantumCape was started uh 14- 15 years ago >> with a desire to give the world a significantly better battery and it's that significant powertrain advantage in the growing EV segment that attracts um OEMs to our solid state lithium metal technology because there's an opportunity for your vehicle to significantly outperform on all of the dimensions that are important. If we have speed, if we have innovation, and we have partner enablement, we expect to win. Welcome to the show, Kevin. So, how are things? >> Things are great. Uh, talking to you today from the sunny Bay Area, uh, right in the heart of of Silicon Valley. >> Yeah, lovely. Uh, weather sounds a lot nicer than, uh, what we've currently got. I'm based in the UK, uh, in London, just by Liverpool Street if you know it. And yeah, it's time. >> I studied for six months the between the University College of London and LSC. I was kind of near the King's Cross station. Love London. I actually grew up in Oregon, so I'm used to that uh that weather vibe, though I have opted differently for the rest of my life being here. >> Yeah. Well, that's completely understandable. Um, all right. Well, let's let's get into the thick of it. Um, I want to just help, I suppose, any listeners that are unfamiliar with QuantumCape to get a better understanding of what you do and your product offering. So, give us a sense of what problems you're solving and how solid state lithium metal cells change the EV equation. It's a wonderful question. Batteries are a massive economic opportunity. If you think of automotive alone, the global market size in 2025 is something like $90 billion. I'm quoting uh Bloomberg New Energy Finance, who's uh one of the more thoughtful forecasts out there. >> That's forecast to grow uh to between 300 and 400 billion, more than 3x over the next 10 years. That's automotive alone and that's still only at about half penetration. So if you layer on all of the other applications for things that use battery today and you start to add in things that don't use batteries but would be a better product if they did, it's truly one of the largest economic opportunities out there which is energy storage. Uh QuantumCape was started uh 14- 15 years ago with a desire to give the world a significantly better battery. For us that means changing the type of chemistry that's used from lithium ion which we use today to as you mentioned what's called solid state lithium metal. And I'm I'm happy to go into some of the the the chemistry and link to the performance advantages if if that would be helpful. >> Yeah, absolutely. Yeah, I think we can come back to that. Um, yeah, I'm sure our listeners would be really interested to hear more there. I think before we do though, let's let's kind of introduce you to the listeners having introduced QuantumCape. So, I think you joined more than a decade ago. Uh, I think you became CFO in 2018. >> So, give us a sense of the key career moments that prepared you for guiding obviously an R&D heavy company and a pre-revenue company towards commercialization. >> That's right. I've been uh I was one of the early non-founding employees have been here more than 14 years which has been a joy to see the journey from does a material even exist that would enable this chemistry for the use in automotive to just two three weeks ago rolling a Ducati uh race bike across the stage powered by our cells. So that was a pretty special moment. So your your your question is what were the what were the experiences that uh well prepared you? >> I would have to give a shout out to uh back in the day my my parents. Um father worked shift work at a paper mill. Mother uh worked part-time as a nurse while raising four kids. Uh stepfather a pharmacist. They they genuine sacrifice uh for the kids to open up opportunities and also the work ethic. That's certainly part of a a startup with that that intensity and that drive and that resilience. Maybe a second thing would be the the combination of a pair of early career experiences with McKenzie as a consultant and bank capital and private equity. As a startup, you uh well, especially as a hard tech startup to be successful, you probably need to be contrarian and right. And by definition, you're doing something that no one has ever done before. for us commercial commercial commercializing solid state lithium metal and automotive and it's basically a set of hypotheses when you start out and being honest about what they are and what the largest ones are and just relentlessly driving at those and it adding structure to something that's that's ambiguous I I would credit those experiences and then the final block I did a joint degree at Stanford an MBA and a master's in science through their uh their inter interdisciplinary environment resources uh joint degree program. >> And then at QuantumCape, I've been here 14 years. I led product management for the first six or seven. I've done operations management, all of marketing, finance, and IT currently. And having worn those hats for uh portions of time helps me uh understand the different challenges and opportunities from different perspectives and to help uh more effectively work with my colleagues and uh to try to make better holistic company uh decisions in my role as CFO. >> Yeah, fantastic. I think that's really useful context and obviously an exciting journey so far. Uh I just want to pick up on that that milestone. You mentioned the GCassi race bike on stage at the recent event which we'll go into uh in more detail soon. Um give us a sense of what that demo validated. Give us give us the kind of context around that milestone. >> So it was an emotional moment. There were many of us there um to see that Ducatti race bike powered by our QSC5 uh cells. Um, as I alluded to when we started out, it wasn't clear if a material existed. Uh, if that material could be made thin and continue to function, >> could be made larger, uh, multi-layered, could be made continuously with no applied pressure, with no excess lithium. All of these things were generally thought to be at least difficult, if not outright possible. And it took going through all of those things to get here. So that was there's still uh a lot of important work to do, but nonetheless to power a vehicle in uh the very bright spotlight of the Munich Auto Show was a very proud moment. Um and it it also really embodied the wonderful partnership we've developed with the Volkswagen Group. Uh Tomas Small, uh board member, head of all group technology, was on stage when that black blanket was pulled off the V, uh 21L Ducatti Rice Bike, uh to debut their first solid state uh vehicle uh ever demoed in the group. Um the pack was done by Audi, the bike was done by Ducati, and QuantumCape together with our partners Power Co. provided the cells. And you asked uh in addition to being a milestone, it was also the first time our cells have been integrated into a module into a pack and integ and and into a vehicle. And I would say every single party that I just mentioned, learn from that experience and you'll see those learnings uh show up in the next set of milestones that we do together. >> Yeah, fantastic. It sounds like a real point of of validation then. Um I think then let's move on to kind of what's to come. I mean obviously that was a big milestone but talk to us about the next steps and the next milestones along your joint road map. >> So in that same uh Monday event at the Munich Auto Show uh Tomas Schmal laid out very clearly what the two next steps are towards the longer term goal. The two next steps is to take that Ducatti race bike and put it on the track. uh quantum scape are no compromise solution across significantly better energy density much higher power which especially shows up in uh charge time. We are these QSC5 cells that I that we that we held up and kind of uh told the world about last October when we started B sample qualification of them have the ability to charge uh in 12.2 minutes between 10 and 80% while pushing the frontier on energy density and safety. There's no finer uh platform and field testing uh context than a Ducatti bike on a racetrack. So that that's the that's uh one of the two milestones uh that's ahead of us in 2026. The other task that uh we need to do is to take our uh prismatic cell and Volkswagen would like to put it into a larger prismatic can >> so they can use it uh more universally across their brands and models as part of their uh standardization that they're seeking to do uh across their broader group. And those two steps are consistent with um our long-term goal of series production of our solid state lithium metal battery technology with Power Code before the end of the decade. >> Yeah. Okay. Yeah, I saw that VW flagged a goal to enable that commercial solution by the end of the decade. So that's that's great. Is there anything you'd like to add in terms of what internally you deem or will deem success by that end of the decade point? So certainly success will be uh tactical uh tactical goals in the year. We talked about on the Q2 earnings call. Uh one of them that is outstanding which is important is to bring up the rest of our pilot line uh here in San Jose. I'm actually sitting in our San Jose building number two which has our pilot line which we're bringing up together with uh Volkswagen's Power Co. Having hit a major milestone in June was to move to our very fast separator process which we call Cobra. All of the downstream equipment we're upgrading as well to keep up and to also introduce higher degrees of particle control and automation. Uh that's key for a few reasons. One is it produces parts for uh other demos um and learning which we'll do. Having brought up the line jointly together, it's one of the tasks of the group to create a blueprint that Volkswagen can then use when we transfer the the the technology into their factories. So, uh, tracking to those milestones, making Volkswagen successful certainly, uh, at the at the top of the list. More broadly, from a corporate perspective, we aren't a single, uh, customer company. success would involve striking similar magnitude deals as what we've done with Volkswagen Power Co. with other OEMs. We are a technology licensing company. I'm sure we'll we'll talk more about that in the business model later. But uh replicating that type of deal structure with a certain cadence uh is important. uh the other the other two things I would highlight is as a technology licensing company we need differentiated uh cell performance and we need to create that and we need to keep replicating it. So I would continuing down the road map and reestablishing and broadening that differentiation and the final thing is broadening the the the quantum ecosystem. Our goal would be for a cell manufacturer who's licensing our technology be to have a turnkey solution with the world's finest partners they can use for example to to source our unique uh ceramic component that enables the the the chemistry we've discussed >> in the last year we've announced collaboration agreements with both Marada based in Japan and Corning based here in the United States who are arguably two of the two of the pre of the premier global ceramics partners you would want in in your ecosystem. >> Yeah, absolutely. Um well, you I mean you you touched on the kind of broader OEM interest then and that was signaled at the event. Um really interesting sentiment coming out that that event. Um can you give us maybe a a kind of less abstract idea of you know the the actual problems that other prospects are looking for you to solve? Uh and do any kind of application examples spring to mind? So I'll start with automotive which is our focus and from uh an OEM's uh point of view and our our first uh our first target will be the performance uh the performance uh segment of the of the very broad automotive market. It is Volkswagen has some of the most iconic brands uh in the world between your Porsches and Audi's and uh Ducatis and Bentleys etc. Um they also have volume brands like Volkswagen, Escod etc. Commercial trucks. So a wonderful partnership we've developed with them over the last 10 years. It's not um taking a broader perspective, it's not common that you see a a significant powertrain advantage when, for example, an Audi or a Porsche would go up against a Mercedes or a BMW. And it's that significant powertrain advantage in the growing EV segment that attracts um OEMs to our solid state lithium metal technology. Why is because there's an opportunity for your vehicle to significantly outperform on all of the dimensions that are important as a um from an EV driver. You want range that turns up in terms of energy density where our QC5 844 watt hours per liter 301 watt hours per kilogram. What that means is that you can put more range in the same uh vehicle footprint without changing the rest of the car. Charge time I mentioned uh 12 12 point uh 12.2 minutes 10 to 80%. That's about half what my uh Tesla Model Y does today. improve safety in uh enabling the solid state lithium metal chemistry. We've removed two of the three organic materials from the cell that would contribute to fire and a safety event that improves uh safety. >> Uh and then the other two would be life and cost. >> So life as manufactured, we do not manufacture an anode. That's the key benefit of a lithium metal cell. We eliminate the graphite silicon that hosts the lithium ion. Hence lithium ion chemistry >> and in doing so that enables the other dimensions that I that uh I discussed but it also eliminates one of the sources of life loss. So you see greater capacity retention over life and finally cost. This is where it's beautiful and that all those performance advantages come from not manufacturing one of the two uh electrodes. So it's by removing material and the associated transformation cost that that by itself improves the cost to sell and it's on us for the ceramic component that we make to make that cost competitively. So the whole cost of goods sold is advantage and that that's something that we target and we believe will be the case as we hit maturity and scale. >> Yeah, absolutely. And perhaps we've already touched on it but keen to kind of hone in on quantum scapes mo you know is it the cam ceramic component? Is it the anodef free architecture that you just referenced, your manufacturing knowhow? What's the hardest thing to copy? >> It's a great question and all of those things that you mentioned, the materials, the process, the architecture are so tied together >> that when you change one, you end up tweaking the others. I'll give you two two ways to look at it. one, if you think about it from the broader perspective, uh, and we we we publish this in our investor um, facing deck, which is right off our website, we we plot everyone's prototype performance for lithium metal batteries because we think that's disruptive and it's a helpful point for for investors to know what have folks actually shown in their chemistry. We're the only ones who've shown what we think is automotive type performance, which we define as 800 plus cycles to less than 20% capacity degradation at reasonable pressures and temperatures with a 1 hour charge and discharge >> um with no excess lithium. Those things together no one else has done and in fact everyone is off by multiple dimensions. Um what's key to that is an understanding of how does lithium metal plate in an automotive context? Uh and what and there's many choices. What material do you use? What processes do you use? And if you combine all those things together, what's the problem you're solving? What's the material using? What's the set of processes? It's a it's a combinatorial very large space which is why it's been so hard uh to solve. So that's uh it it's really the the iterations over the last uh 14 years going through that uh with those interconnected variables um combining unique um skill sets and and people together and I would also argue that it has to be done under one roof. I don't think you could do the component itself without having a broader understanding of the rest of the cell. So I think that's been uh the the the the the key to success for us. And just as evidence of that, a as we went from batch production to continuous production to faster continuous production to even faster continuous production going through Raptor and Cobra, we were making tweaks to the architecture and to the materials at every step along the way. I don't think there's any shortcut through that type of iterative problem solving. And just as a as a final comment in terms of intellectual property strategy and protecting it, we we keep as trade secrets the things that can't be reverse engineered when you've uh taped one of yourselves and um uh investigate it. Anything that can be reverse engineered, we file uh patents against. Um because we've been first to the show, uh we've have over 300 patents and and patent applications. >> Yeah. Fantastic. Well, I think that leads me on to my next point then. know quantum scape are doing a lot are doing a a ton of fascinating interesting things but like I guess on the flip side of that how do you decide what to hone in on what parts of the battery value chain should you own directly versus where does it make sense to pursue a capital light licensing approach >> so not this summer but the prior summer we made an important decision to become a technology licensing company and along with that decision we announced BW power co as our anchor tenant The prior strategy was as a joint venture um similar to it but not the same. It has greater it would have had greater capital intensity. >> We went from a joint venture to that technology licensing uh model where our core deliverable is intellectual property to our partners. Um why did we make that choice? A few reasons. One is that that is what we are good at today. uh we have shown I think very impressive results out of our QSC5 we're very proud of the roadmap uh the process the tools the materials the supply chain that's our core competency today uh a second from the point of investors is that it's very capital efficient when we announced that we said that we removed the equivalent of a half billion dollars from our roadmap in terms of the need to raise money that came from a combination of things eliminating the need to invest in a factory uh new inflows from Volkswagen in the in the form of the royalty prepaid and al also because of the contribution of power co resources and us needing to do less actually lower expenditure from us as a company. So that capitalite nature uh we think is important and then if you fast forward to this summer we expanded that deal. That deal was up to 80 gawatt hours. It's about a million vehicles. That's a massive deal with one of the world's pre-minent automotive manufacturers, kind of the anchor anchor tenant of the ecosystem. What's neat about this uh expanded deal is now there's in addition to that 130 million royalty prepaid, there's also an opportunity to earn up to $131 million of collaboration payments where Volkswagen is paying us to do custom development specific uh to their asks. So from an investor point of view, instead of waiting for the technology to ordering the equipment, the factory to start up, yields to improve, and then off to the races, there's an opportunity for cash flows. Uh now we we said in the most recent Q2 call that the goal was in Q3 to invoice for the first time in our history, we we we talked about approximately a $10 million invoice. So pulling forward to the immediate moment a customer paying us for the technology development was is a very a very kind of potent thing and a nice signal for investors that what we're doing is important. And uh I'll use the opportunity just to take a a step back that um we've kind of painted in one of the two cash flows for investors which is that uh payment from OEMs during the collaboration phase of the business. The second of course is once the license is granted that's the in the licensing portion that's where the bulk of the economic opportunity uh is. So the the goal of the company with those two opportunities for cash flow be to strike a set of these style of deals where there's significant potential cash flow in this collaboration phase that can be a very powerful offset towards our kind of core expenses as a uh innovation focused company. And then longer term with those licensing payments there's wonderful operating leverage in a licensing business model and you can think of it so our uh CEO uh Dr. Civic Civer comes from the semiconductor space and we're effectively trying to take a page out of that playbook where you have uh fabous design companies like Nvidia, >> dedicated manufacturers like TSMC and specialized ecosystem players like ASML making components. We're trying to replicate exactly that. uh here in the lottery space you have quantum scape on the innovation side, power co is an example on the cell manufacturing side and uh Marada and Corning in those ecosystem type roles. So that's we're literally trying to take a playbook right out of the semiconductor space. >> Yeah, fantastic. I think that's a really useful analogy. Um and I think that's a nice segue then to talk about more explicitly the financials. Um I read that you extended cash runway into 2029. So what assumptions underpin that? Is it the power co milestones you've referenced operating cost trajectory or additional collaboration inflows perhaps? >> So the uh the first part of your question yes and the second part of your question would be upside. So it's the >> uh in Q2 the 800 um roughly $800 million of cash and marketable securities. The power co the expanded power co uh agreement is an input into that cash runway calculation. any further deals with other OEMs or any expansion outside of of automotive that would all be upside to that forecast and incremental cash. >> Fantastic. Okay. Well, let's have um a look at how that translates to the share price. Um so, you know, I I looked before the call. I I think QS shares are up around 179% year to date. So, fantastic growth so far this year. give us a sense of what's driving that momentum in your view and what milestone should dictate the narrative from here on in. >> A great question. If you look back, it was almost a year exactly because we're uh in just um the earnings call will be upon us uh soon or perhaps by this film. We'll be just on the other side of it. That's when we talked about the QSC5 cell. So that a the first kind of B sample of a new technology is a very big product development um milestone. So that started the last year and if you think about what we've accomplished in June we went from our raptor process which was an 8x improvement over our prior continuous uh process to our Cobra process which is an incremental 25x. >> So that was a big milestone. It's not enough for to have high performing cells. You need to have a uh a method of making at at automotive scale that we think can scale the rest of the way. That is Cobra. We expanded the Volkswagen arrangement. It went from 80 to 85 gatt hours. We added that $131 million of collaboration payments. VW got the right to certain gen 2 technology as well as the ability on that last 5 gawatt hours to uh sell it outside the Volkswagen group and that isn't limited to any application. We announced uh partnerships with both Marada and Corning, a very key uh ecosystem uh additions and uh as we discussed um our QC5 cells powered a Ducati race bike across the IIA Munich stage. So it's been one heck of a year in terms of execution. Looking ahead, I would uh look to us to go after the rest of the goals in 2025 that we alluded to on the Q2 call. That would be successfully installing the key production uh the the key cell production equipment with Power Co to bring up the rest of the line uh to continue to work on expanding commercial relationships uh as well as the first B1 sample shipments using our our Cobra cells and more broadly as we alluded to making Volkswagen successful striking other similar deals with other OEMs fleshing out the rest of the road map and continuing to work on the on the QS ecosystem. I think those would be the major categories of of catalysts I'd look to. >> Yeah, fantastic. I think you've given us a nice kind of overview. Um, and having covered the bulk case, I suppose to use the sort of investment speak. Let's have a look at the risks if you can play devil's advocate for a second, uh, perhaps you can give us up to three execution risks from here, uh, and your mitigations to those. So if you look back to what I said were things to do, uh bringing up a pilot line, taking something from a prototype, getting it to the point of transfer and then supporting uh our partners doing that transfer is the task. I think the things with that would be what does it mean to industrialize? Um I think you'd point to things like yield. I think you'd point to things like supply chain >> and I think you'd point to IP protection as being some of the big three. >> So yield, what does that look like? >> It is uh very nonsexy engineering. You paro out what are the sources of yield loss? You define, you measure, you analyze, you improve, you control, you rinse, repeat. Uh Civa talks about uh being systematic, methodical, and iterative. There aren't shortcuts. you just do it over and over and over again. Civa, wonderful CEO um has taken I'll use some liberties call it a dozen uh technologies across semiconductor and data storage and solar from prototypes into into production into mass market. All of those learning curves that you see uh technology after technology after technology you see them but they don't come down by themselves. It's that iterative type of engineering work in the background. It's difficult work. It's challenging work. But if you just if you persist at it, that's how you create the learning curve. >> Supply chain. So it is a new component. Um it has uh materials. It has equipment. Um how do we derisk that? So one path is which we do well there's uh one precursor and then one mitigate. We've mentioned before that uh we've settled on a separator that can both meet performance requirements but that is also made of earth abundant materials whose producers are found on all the major geographies across multiple different players. That's an important way to start and then we work with with multiple players um many of the most the the who's who of that sector. The number has advantage both both as a portfolio effect but they also have slightly different approaches with how they would scale it up and bring cost and automotive quality as volumes ramp up. Uh and then the third which is IP protection. So um it is somewhat contrary to IP protection to go into a licensing model. By definition you are teaching a select number of partners your special uh your your trade secrets are very hard to otherwise reverse engineer. So the strategy there is to align incentives very well to make sure that there's a very attractive business model available for both us and our partners uh so that they have the same incentives we do to both care uh for the intellectual property and for what we jointly protect together to to protect it as well as all of the contractual uh boots and suspenders. And there there's also a sweet spot with a number of partners. We want um we want some some choice for our cell manufacturers, but also we want it limited to not overly do that uh uh diffusion type type risk. >> Yeah. Fantastic. Well, I I appreciate that's harder to do than outlining all of the exciting kind of ball case scenarios. So, I appreciate that really objective analysis. Um and and kind of whilst you I think you referenced learning curves a couple of times there. Whilst we're thinking with that mindset, if you could rewrite one assumption that you held say two years ago about solid state commercialization, what would that be? >> So two years ago would have been 2023. Um for me I I mentioned that startups are all about or early kind of pre pre-commercial companies are all about hypotheses. for us >> we had a we had a hypothesis which was can a licensing model be successful in this energy storage type space so I would uh that was certainly something that was a question mark that we put a lot of evidence against uh with the VW power co type deal and the attraction of the ecosystem partners and more broadly there is a funnel in the background that we've discussed about with me many other OEMs who are interested in that type of Well, uh, and we think in a very competitive world that is dominated by a small number of Chinese lithium-ion manufacturers that focusing on a differentiated product and stacking the strengths of uh, global partners to both achieve scale and al both the scale of output as well as scale of development dollars. we think is a very effective strategy that uh if we have speed, if we have innovation and we have partner enablement, we expect to win. >> Yeah, absolutely. Okay. Well, I think that's a nice sort of penultimate insight then. Um and for anyone that's listened to the podcast before, the question that we always end with is to ask our interviewees what their next big idea in their particular field is. So, our tagline is invest in the next big idea. So, if you could just highlight one product, technology, or even innovation, regardless of how niche, within your space, what would it be? >> I'm personally really excited about battery recycling and as well as how the solid state lithium metal will help accelerate it. >> If you think about it, batteries are pretty special. At the end of automotive life, you should take them out. you should go find a second application, go use them in a second application like the grid. At the end of that life, say you choose to recycle it. All of the materials that you put into the battery are still there. So you should be able to take it and to pull out those valuable materials and over time with penetration is ultimately more and more things uh as more packs come to end of second life say a first some and then more and then most and then substantially all of inputs to make more batteries should come from recycling. So the dependency on mining and pulling things out of the earth should dwindle down. And that's a very powerful that's a that's a very powerful concept in terms of a true closed loop secure uh supply chain that's also sustainable. So that is um I'm very excited uh about and an area where solidstate lithium metal batteries can accelerate that those that are no excess lithium as we make. Um, it turns out one of the most dirty components to make when you make a cell is the anode that graphite and silicon. >> And it's also one of the dirtiest and least economical components to recycle. In fact, many approaches burn it. So the uh we have no anode. So it's only the separator which we think you can extract and reuse either grind it up or recapture the materials as well as the metals and the foil. So more of what you economically want is there. So I that's I think a wonderful um a wonderful end state that that we hope to accelerate. >> Yeah, absolutely. I think a really illuminating next big idea um on which I think we can end the podcast. I mean it just leads me to say thank you very much for joining us on the show Kevin. It's been a real pleasure. >> Our pleasure and thank you for inviting us and letting us share about solidstate uh lithium metal batteries.