Good day and welcome to QuantumScape's Fourth Quarter 2020 Earnings Conference Call. My name is Sheryl, and I'll be your conference operator today. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Thank you.

John Saager, QuantumScape's Head of Investor Relations, you may begin your conference..

Thank you, operator. Good afternoon and thank you to everyone for joining QuantumScape's fourth quarter 2020 earnings conference call. To supplement today's discussion, please go to our IR website at ir.quantumscape.com to view our Shareholder Letter.

Before we begin, I want to call your attention to our Safe Harbor provision for forward-looking statements that is posted on our website and as part of our quarterly update.

The Safe Harbor provision identifies risk factors that may cause actual results to differ materially from the content of our forward-looking statement for the reasons that we sight in our Form 10-K and other SEC filings, including uncertainties posed by the difficulty in predicting future outcomes.

Joining us today will be QuantumScape's Co-founder, CEO and Chairman, Jagdeep Singh; and our CFO, Kevin Hettrich. Jagdeep will provide a strategic update on the business, and then Kevin will cover the financial results and our outlook in more detail. With that, I'd like to turn the call over to Jagdeep Singh..

Thanks, John. Welcome to our first earnings call as a public company. Earlier today, we published a letter to our shareholders summarizing the major developments from the last quarter and fiscal year. If you haven't already read it, we encourage you to take a look as our shareholder letter will be the primary way we report our progress to you.

In addition to the SEC website, you can also find it on our company Investor Relations website, ir.quantumscape.com. I won't repeat all of the contents of the letter here, but I would like to call your attention to a couple of key highlight. First, for those that are new to the QuantumScape story, some brief background.

We were founded in 2010 out of Stanford with the mission to revolutionize energy storage and enable a sustainable future.

The first application we focused on is the transformation of the automotive powertrain to an electrified version, which we believe represents both a very important part of the solution to the emissions problem as well as an opportunity to create tremendous value over the coming decades.

Over time, we expect to push into other markets, including stationary storage for the power grid and consumer electronics. We are a pioneer in the development of a new type of battery, the solid-state lithium-metal battery.

Our technology replaces the polymer separator used in conventional batteries with a solid-state ceramic separator, enabling us to replace the carbon or silicon anode used in these conventional cells with an anode of pure metallic lithium, which in turn allows us to make batteries with higher energy density, greater driving range on a single charge, faster charge times, and improved safety while offering long cycle life.

We believe these are some of the fundamental issues holding back widespread adoption of battery electric vehicles. The beauty of our approach is we delivered these benefits, not by increasing the complexity of the battery, but by simplifying it, eliminating the anode layer of conventional cells.

As a result, less than conventional batteries, last December, our batteries should clear the benefits of this lithium-metal approach versus the traditional lithium-ion approach.

In particular, we showed data showing the cells were capable of achieving long cycle life now with over 1,000 cycles to like 90% of the initial capacity, while operating at near room temperatures of 30 degrees Celsius and high current densities or rates of power of 1C.

In addition, we shared data showing these cells were capable of fast charge rates of 15 minutes to 80% state of charge, excellent performance relative to conventional cells on the most demanding drive cycle such as those found on racetracks and operation at low temperatures including cycling data at negative 10 degrees Celsius.

We believe this data marks a new high watermark for the solid-state battery industry and are unaware of any alternative solid-state approach with better performance result.

I think demonstrated this level of performance on our single battery cells, our goal for the coming year is to stack these layers up and make multi-layer cells, forming the basis for our commercial target cells. We are therefore very pleased to report for the first time that we have assembled four layer cells in the 30 by 30 millimeter form factor.

And these cells have reached close to 800 cycles to over 90% capacity retention at both 1C and C/3 rates at 30 degree Celsius, substantially similar to the cycling performance we showed in our single layer cell, and demonstrating it is possible to stack our single layer cells without adversely impacting cycle life and capacity retention of the cells.

We use 30 by 30 millimeter cells, made from separators cut from our standard target commercial areas separators, because it allowed us to effectively quadruple our current outlook as we work to scale up our engineering line capacity.

While there is still a lot of work to be done and we could encounter new challenges as we increased our layer count, this is an incredibly important result, and we are excited to have this so early in the year.

We now need to make these multi-layer cells using our commercial area 70 by 85 millimeter layers, increase the number of layers, aiming first for four layers and subsequently for eight to 10 layers by year-end, optimize the manufacturing processes, and address any new challenges we find.

We believe that if we achieve these milestones, we will be on track to achieve our goal of delivering prototype battery cells to our customers in 2022.

The other thing, I'd like to draw your attention to, is based on this recent progress and to help with further scale-up, we have decided to build our own pre-pilot line facility in San Jose, which we call QS-0.

QS-0 is intended to have a continuous flow, high automation line capable of building over 100,000 engineering cell samples per year, and we expect to be producing cells on this line by 2023.

QS-0 will help provide the additional capacity we need for our development work and will enable us to accelerate work on the next generation of that manufacturing tools. It will also provide capacity to make enough batteries for hundreds of long-range battery electric test vehicles per year.

This will allow us to provide early cells to VW, as well as other automotive partners, explore non-automotive applications, and help de-risk subsequent commercial scale-up. With that, I'll hand it over to our CFO, Kevin Hettrich, to say a few words about our financial performance, and then open it up to Q&A.

Kevin?.

Thanks, Jagdeep. Before I get perspective on our financial outlook for 2021, I would like to first give a little color on our fourth quarter and full year 2020 result. In the fourth quarter, our operating expenses were $30 million. Excluding stock-based compensation, operating expenses were $22 million. In accordance with U.S.

GAAP, we were required to take a non-cash expense of $665 million relating to warrants and Series F preferred stock issued prior to the business Combination, bringing our GAAP net loss in the fourth quarter to $695 million. These preferred warrants and Series F preferred stock originally classified as liabilities in accordance with U.S.

GAAP, were subject to non-cash fair value measurement at issuance entities reporting period. The final re-measurements were done at the close of the business combination. As a result, there will be no further re-measurements related to these.

On a full year basis, our operating expenses were $81 million or $64 million excluding stock-based compensation. Our GAAP net loss for fiscal year 2020 was $1.1 billion. Fair value adjustment of the preferred stock previously referenced. The nearest 0.1 million shares, we ended 2020 with approximately 364.0 million shares of common stock outstanding.

As of December 31, 2020, the company had a total of approximately $466.6 million issued and issuable shares, including those issuable upon the exercise of warrants, shares issuable upon the Volkswagen's second tranche investment, and shares issuable to employees and consultants upon the exercise of outstanding options or vesting of RSUs.

Note that all the aforementioned shares, warrants, options and RSUs have been registered on the company's S4, S1 and S8 filings. With respect to cash, we used $37 million of free cash flow in the fourth quarter and $85 million for the full year 2020.

We anticipate free cash flow burn to be in the range of 230 million to 290 million for 2021, of which approximately 40% to 50% of CapEx, including investments in QS-0.These investments will support our multi-layer work, advanced production process maturity, notably to make our solid-state separator films and for cell assembly, and support customer engagement.

We expect to use less than $60 million of net cash in 2021, assuming receipt of proceeds from the Volkswagen financing and assuming exercise the Public Warrants. This would allow us to enter 2022 with the liquidity position of over 900 million sufficient funding, we believe, to fund us through production.

Of course the pace with which we are able to spend will depend on several factors including the ability to ramp headcount and the maturity of our production processes including the level of its automation.

With nearly $1 billion on the books as of Q4 2020, the strength of our balance sheet we believe will give us the flexibility we need to execute on our plan through commercialization. In summary, we're excited with where we are and look forward to the challenge ahead.

We'd like to thank our investors for their support and belief in our mission to help usher in the battery and electric vehicle revolution. With that, I'll pass it back over to John.

John?.

Thanks, Kevin. As a matter of practice, going forward, we will begin the Q&A portion by asking our management team, a few of the most pertinent questions on the minds of investors. For future reference, investors can submit questions through our Investor Relations inbox by emailing ir@quantumscape.com.

This quarter's most frequently asked questions are as follows. Competitor progress and announcements. It seems like others are going to get to market before QuantumScape and have already achieved multi-layer.

Can you talk about your progress as it relates to that of others like NIO, Toyota and Solid Power?.

Sure. The key point to note here is that it doesn't help to have a multi-layer cell that uses a single layer building block that doesn't work. It will be the equivalent of trying to put up a multi-storey building when you haven't been able to make a single-storey building without collapsing on itself.

So we haven't seen any data from any of the competitor that has shown a solid-state separator capable of delivering long cycle life, high current densities without requiring elevated temperatures. As a result, the players you just mentioned fall into one or two categories.

Those that are reverted back to carbon-based error, which of course, result in a loss of many of the key benefits of the solid-state lithium-metal architecture including energy density, fast charging cost and those that use lithium-metal but can only work under compromised test conditions, that make those cells not commercially viable.

We believe we are the only player to have shown a solid-state lithium-metal single layer building block capable of meeting the key requirements of long cycle life, high current density and unelevated temperatures.

So for those who are interested in learning more, we've actually published a survey of the solid-state battery magic [ph] and you can find it on our website..

Okay, great. Between 1C and C/3 charge industry, and it simply will refer to the rate of charge and discharge. The letter C in that description refers to one charge or discharge, and the number refers to how many such charges or discharges can be performed in one hour.

So 1C means, one charge or discharge per hour, C/3 means one-third of the charge or discharge in one hour. One full charge or discharge in three hours.

I note that high 1C rates are more stressed on the battery adversely impacting cycle life, so lithium-ion battery cycle life testing is often quoted at C/3 rates because the QuantumScape technology is robust under high power conditions.

We want to be able to run out cycle life test and 1C rates which allows to a faster data collection and shorter development cycles. Finally, I'll point out that with conventional batteries, we can either be designed to be energy cells with high energy but low power, or power cells, which have high power renewable energy.

What are the unique things about the QuantumScape technology, is this is an energy cell with a target of 1,000 watt-hours per liter, higher than the cells used in today's [indiscernible] which are around 700 or so watt-hours per liter. But considerably charge at high rates as shown by our 4C 15-minute target..

Okay, great.

Our next question is how will future improvements and lithium-ion chemistries affect your batteries?.

Sure. So most of the improvements in the world of lithium-ion stem either from better CapEx or better anodes. On the CapEx side, we're completely exhausting.

So we're able to take advantage of any improvements on capital technology including material level improvements, such as higher liquid content as well as manufacturing level improvements, such as dry electrode processing.

Because these improvements are being driven even by material suppliers who sell to us or in some cases automotive OEMs to whom we sell to, we believe will have access to both of these sources; so fewer of those as a competitor. Now on the anode side, the improvements are related to adding a certain amount of silicon to the carbon anode.

So silicon can hold more lithium than carbon. However silicon expands and contracts so much during cycling that adversely impacts the cycle life of these cells. So the amount of silicon using these cells is limited to a fraction of the anode. As a result, this approach only provide a small benefit energy density.

By contrast, lithium-metal approach eliminates a 100% of the carbon or silicon anode resulting in a significant increase in energy density. Thus we see ourselves with lithium-metal approach as being able to deliver greater density than conventional lithium-ion even into the future..

Okay. And our final question.

What makes you feel like you'll have a sustainable cost advantage over the rest of the industry?.

So in our architecture we eliminate the traditional carbon or silicon anode entirely, which means we get rid of the anode materials, the anode electrode manufacturing line and the anode formation process, which is a multi-week long process in which a chemical side reaction is allowed to occur between the carbon particle and liquid electrolyte.

As a result, given we believe our separator will be in the same order of magnitude and cost as conventional separators. We expect that the quantitative approach, what should be a lower cost than conventional lithium iron cells at any given manufacturing scale..

All right. Thank you, Jagdeep. We're now ready to begin the Q&A portion of today's call. Operator, please open the lines for questions..

Thank you. [Operator Instructions] Our first question comes from Mark Delaney from Goldman Sachs. Please go ahead. Your line is open..

Yes, good afternoon. Thanks very much for taking the questions, and very happy to have the company having its first earnings call. I wanted to ask about the pre-pilot facility that you announced today. And the additional cells is going to give the company to work with.

Do you think that changes your outlook that you articulated in the investor deck in terms of what kind of revenue the company can be generating either in terms of perhaps generating revenues somewhat sooner than the current 2024 projection or potentially higher in magnitude compared to previously outlined yes?.

Yes. Hi, Mark, this is Jagdeep.

The QS-0 is really designed to -- we don't expect it's going to have in the sense that it's going to make cells that we will provide to our automotive OEMs to make test cars, but it does have an indirect impact in the sense that it increases the possibility that we can have a successful rollout of QS-1 and subsequent manufacturing builds.

So that's why I was thinking about what QS-0 is designed to do..

That's helpful, thanks. And then you in terms of the run rate on operating expenses that the company guided to for this year. So I think 50% to 60% of the cash outlays that you put in your shareholder letter.

I think the implied operating expenses in 2021 are a little bit above what is implied in the last Investor Presentation for 2022 operating expenses.

So it seems like perhaps the company is taking a bit planned investment levels, and I assume that correlating with this QS-0 and some of the ability that the company has to do a bit more, but I am hoping to better understand to what extent you are in fact taking up your operating expenses compared to the prior plan..

Kevin, do you want to take that one?.

Sure. Mark, as you had seen from our current run rate, we're spending -- or we spent $27.2 million in operating activities in Q4 and $10.2 million in CapEx. And as you correctly noted, the guidance was $230 million to $290 million In '21 with about 40% to 50% being allocated towards QS-0.

QS-0 is incremental to the plan, so there will be the OpEx portion, you would expect it to be a little higher, leaving '22 and beyond. We don't have specific guidance on that number in this call..

Interesting. And just lastly, in terms of some of the operational milestones. Thank you for the update on the multi-layer. And, that's good to learn more about.

The other area that was discussed by the company was get -- in terms of getting the yields up on the separator manufacturing, I don't know if there's anything on that front that you're able to share with us today..

Yes. So, it's Jagdeep. Yes, there is nothing. We're showing today on that, but I think the important milestone really was -- was demonstrating that when you take single layer cells and make multi-layer stacks out of them, in this case four-layer stacks that capacity retention, and the cycle life behavior doesn't change materially.

So that's really what we were excited about. And as I pointed out in the opening remarks, obviously, there is more work to be done there to scale up production and to have the layers, the actual production size of 70 to 85 and to deal with any other unforeseen issues that might arise.

And so as we complete that process, but the core -- the core result that the single layers can be in fact stacked into multi-layer cells with data that looks substantially very similar to what data was that we should to similar cells. That's very exciting to us.

And to have that at this sort of the year just means that we have the rest of the year to accomplish the rest of those tasks that I mentioned in terms of scaling..

That's very helpful. Thank you..

Sure. Great questions..

Thank you. And our next question comes from Adam Jonas from Morgan Stanley. Please go ahead. Your line is open..

Thank you. Hello, everybody. Hey, Jagdeep. First, great disclosure. Thanks for that. Couple of questions. On QS-0, I think it gives you, to your point, a chance to test prototypes with other say non-Volkswagen customers and potential customers as well. I'm curious, if today you're able to update us on the status of any discussions with non-VW customers.

As I imagine, you're IPO or the listing of the company itself, and all the attention around it can create a lot of interesting commercial benefits. I'm curious if that you've seen an uptick in those discussions or anything you care to update us at this time? And then I have a couple of follow-ups..

Yes, Adam, thanks for the question. Yes. So as you correctly guessed, maybe the -- some of the higher profile that we have now that we're public has clearly resulted in a meaningful number of inbounds that we're working through. We have said before that we've actually had ourselves tested by multiple automotive OEMs.

So VW obviously is the only one that we've announced. But I think that as you know, the VW deal, as great as VW is a partner that deal is non-exclusive. So we are free and we fully intend to work with other OEMs in the fullness of time.

We're not announcing anything on that front today obviously, but we fully expect to work with multiple OEMs over time. And beyond automotive OEMs, what's the interest from other sectors? Some of the ones we mentioned earlier, including the stationary storage for the grid as well as consumer electronics.

And we're -- right now, we are constrained by our ability to just produce enough cells to provide customers without the test. But as we bring QS-0 online, we are able to produce more cells.

That's one of the big benefits of having the production capacity as we will in fact be able to make this technology available to a broader set of customers out of special interest..

Thanks, Jagdeep. Next question is on the factory location of QS-1 and the expansion in Europe. I think most people on this call would expect that it might be in Germany.

I don't know what we should -- how you're thinking about that particularly as you're seeing other battery capacity investments being closer to renewable sources of energy, you're seeing Norway get a lot of it.

So I'm curious if -- again, I'm not trying to ask you to breaking new news that you didn't put in your letter, but how you're thinking about proximity to Volkswagen versus renewable-sourced, at the source, manufacturing for what is a very energy-intensive process? Thanks..

Yes, it's a great question. And I think what I can tell you is, those are exactly the kind of, I think, kind of issues that we need to balance as we make those vinyl siding decisions. So on one hand the trend in the industry is locating battery manufacturing close to where the vehicle manufacturing is [indiscernible].

On the other hand, you also need to balance the supply chain aspects of vinyl siding decisions that includes power and also comes other supply that goes into the battery includes labor. So it's a multi-dimensional kind of a problem. And I think the main takeaway is it -- the facility is likely to be close to where the vehicles are manufactured.

But the question of how close is going to be a function of how those other dynamics come into play?.

Okay. And just a final one for me Jagdeep, you mentioned other markets. When I hear you talk about the energy density both gravimetrically and volumetrically, of course, there are direct implications to electric aviation in eVTOL market. And some of the scenarios we're running at least, the size of those markets could be in some cases very, very large.

In some cases maybe even larger than the automotive market.

I'm curious what you think about that market potential of eVTOL urban air mobility, is it something that you at a high level are exploring even though you don't mention it and call it out specifically in your prepared remarks?.

Yes, that's a good question. eVTOL is definitely a very interesting new emerging area, and we are in fact in discussions with players in that sector.

It's a little too early for us to be able to predict just how big that market will be, and when they starts taking off? But as you correctly surmised, debt market is extremely sensitive to the gravimetric energy density in particular. Could that obviously impacts the whole -- the whole application grew significantly.

And so the energy density benefits that we were offering, make it a really compelling fit for that application.

So I think what it comes down to in the end, we have -- in the near-term at least, in very near-term, we're going to be somewhat capacity constrained, and what that gives us the luxury of is really being able to pick those markets that have the most compelling fit in terms of the overall application, the economics for us, for our customers and so on.

But as we make progress on them, I'm sort of narrowing down some of those near-term expansion markets. I will be sure to communicate them as well, Adam..

Thanks, Jagdeep..

Operator, if there is another question, we can go..

Please go ahead. Our next question comes from Rod Lache from Wolfe Research. Please go ahead. Your line is open..

Hi, everybody. Wanted to ask, just on the -- about the gating factors in testing and moving to 8 to 10 layers, maybe you could just give us a little bit of color on what the incremental challenges are that you'd need to overcome.

I'm assuming that there is -- it's the volumetric changes that those cells encounter when they're being played with lithium and also how many layers, do you anticipate in the final commercial form factor.

And what are the biggest development challenges you did overcome in order to achieve that?.

Yes. Hey, Rod, it's Jagdeep. So, the number of layers is a little bit of a variable commodity depends on which customer and which TACT design and which margins are we talking about. So there is no one number I could give you there.

I think if you say there is going to be a few dozen layers in, in virtually every flavor of cell that we make for different OEMs, then you'll be in the right ballpark. And it doesn't kind of capture it, it's going to be more than a dozen and less than a few hundred trying to similar that range, but if -- doesn't miss that wide range.

As far as the main challenges to get there, do we quite candid, the major issue -- the major need that we have in the very immediate term is just to make more of these materials, so we can make more cells.

The multi-layer, what isn't generally appreciated the multi-layer is -- if you making multi-layer cells, you need a lot more there; so four-layered cell, for example, needs a quadrupling of your manufacturing capacity 10 layers there means an order of magnitude more capacity.

We sized our engineering lines to be appropriate for the development work we're doing on single layer cells. Once we had the single data that we shared with the world in December, we started ramping up production tools and equipment to be able to produce more cells. But unfortunately a lot of those tools.

We -- the good news is we get -- we can acquire those tools from existing suppliers, so we don't need to make those tools ourselves. But on the downside, those two have lead times associated with that. So we can't just return on this figure and make more cells overnight.

So there's a lot of tools waiting on that have been ordered, that need to be delivered turned off or configured. That's really probably the most immediate gating item to the multi-ourselves. Once we get that capacity installed, we're going to be able to produce more cells, do the appropriate engineering work to finish that development cycle.

And once we get to our target of 8 to 10 layers by year-end, at that point we will have, as I mentioned in the prepared remarks, the building blocks to be able to then build the [indiscernible] of customers..

Okay, great. Thank you. And can you just give us an update on your latest thoughts on scaling.

Just assuming that everything goes well with the pilot line in 2024, presumably, you're going to -- want to scale this as much as possible with a variety of upsell manufacturers, so what could the economics of that looked like as you want to expand beyond 2024?.

Well, I mean, just to make sure, I guess the question you're asking about kind of the business model so for how we might do more production capacity or is that....

Yes, I would assume that you would want to leverage capacity that's being built by a variety of different cell manufacturers elsewhere, right. So that would involve some licensing arrangement.

It would be challenging to manage that all by yourself?.

Yes. So what we've said is there are sort of handful of key fundamental ways you could do production, right. So the simplest way is to do it all yourself. That's ones you mentioned, right. The next way is we have this JV type model that we're doing with Volkswagen.

In that case, we're obviously bringing the core solid-state battery expertise, and they're bringing a lot of general high volume, high quality manufacturing backlog.

The other models where we can actually outsource some of the components that go into our cells, for example, the real unique part of what we're doing is of course the solid-state separator. Some of the capital work could potentially be done by third parties. So we're obviously exploring that.

The ultimate, I think in terms of [indiscernible] license the IP to a third-party manufacturing company. And the challenge there of course is just IP protection, IP diffusion, but you don't want to license IP to somebody unless you have super high confidence that IP is going to be protected. Otherwise U.S.

is kind of diluting the fundamental technology also of the company in some way. So I think what we're doing is trying just look at the economic tradeoff and balance between those different models.

For sure, we're doing the JV with VW, for sure we are doing our own production with QS-0, and we have no particular desire to spend any of our capital or any of our team's energy or bandwidth on to do things that can be done better elsewhere, or they are already being done elsewhere.

We want to basically think that are not available elsewhere, so if we can buy something that has sufficient quality and liability to meet our needs from a third-party, we'll have to -- do you want to pursue that. It's only if somebody doesn't make something that we need that we want to do it ourselves.

That's the general philosophy that you can assume we will use going forward in that side..

Great. Thank you..

Sure..

Thank you. And our next question comes from Ben Kallo from Baird. Please go ahead. Your line is open..

Hey congratulations, guys, on the first conference call. Thanks for all the information. One of the things you talked about, and we're still trying to understand the layering and congratulations on that stuff. Once you have the sufficient number of layers, how difficult do you anticipate it is to transition into a pack? That's my first question..

Yes. Hey Ben, how are you? Thanks for the question. So the number of layers as I mentioned earlier that we have is going to be really a function of what the particular pack in module need. So it will kind of be designed with the packing modular line.

And once you have that sound with the right number of layers, then the pack level design is relatively speaking, a straightforward in the sense that the electrical behavior of these cells is similar to what is already being used.

We use the same cathode material that's conventionally being used, so the discharge profile electrically will be very similar. The thermal behavior of these cells, we expect will be better because the lithium-metal, it makes up our anode is a much better conductor of heat than traditional carbon based analyst.

So we can shuttle way heat much, much better. Also our separator is much more tolerant to heat it's stable to very, very high temperatures. The BMS interface should be very similar to conventional BMSs.

So we think that integrating at a tight level should be -- it requires engineering, of course, but because the cells have already been design, will be -- we will have been designed to the particular module and pack stacks. We don't expect any fundamental challenges there.

But the real key is, it's just being able to complete this multi-development that we showed that really -- we've given data on earlier today..

Okay. You've mentioned consumer electronics and then stationary storage and potentially other markets. Could you talk about why because they're counterintuitive to me but consumer electronics seems like it could be the easiest market to go after with less onerous requirements around the packs of the batteries themselves.

But maybe that's just the Volkswagen relationship that it is moving towards auto market first?.

No, it's a great question. I mean we spent many years. We've got a lot of time in the early days of the company trying to figure out which markets we should go after. Look, there is many battery companies that are trying to do it, all and our fundamental belief is just a start-up. We had to focus, we are trying to do too much.

This result is doing nothing well. We wanted to -- we rather -- we thought we rather take a small number of markets, but really solve the problems really well. The question is what's going to be pick, if we can't do them all.

And we -- based on our analysis, you actually buy consumer electronics without a doubt is a much easier market, doesn't need the same power density, no one is going to need foresee charges, 15 min charge for a cell phone.

The operating temperature that needs to be here negative, whatever 10, 20, 30 degrees previously will be a positive tend to be Celsius. And with that respect, you don't need as many layers, it's just -- these are some of ways. Having said that, we saw that the size of the market was so much bigger with the automotive application.

Each car -- each long range be the -- say global Tesla Model less cost vehicle has the equivalent of 10,000 iPhones worth of batteries, right. So that's four orders of magnitude bigger which is massive, right.

So, if you look at Apple's volumes, I haven't checked recently, but even if Apple's sold something like 200 million a year, that would be really the size of a small pilot line. That's not much more than our first VW Phase 1 power line we will be producing; so it's a very small one compared to one for the year.

The second point we make is in terms of impact in the application, cellphones they'd love to get more volume -- The consumer devices would love to reduce the volume taken up by the battery by say a factor of two. So they can squeeze more functionality and more electronics into the other phone.

But in terms of -- but they have perfectly defined phones right now that there is something a lot of words in the automotive space. We felt like these benefits are really disruptive enablers of a much higher level of penetration.

So between the combination of the importance of our technology in the automotive sector compared to others and the size of that sector, we locked in on that particular space pretty early in our life cycle.

And I think, overall, it was a good decision because we were able to get this new partnership which has been phenomenal for us as you guys already know.

And I think we've executed exactly what we are hoping, which is that if we take one follow and we think we're solving it well and having solved it because in some ways as you pointed out, this is the hardest of the problems. Expanding to the other sectors. It's really in some ways a move downhill.

So we feel like we're well positioned to -- that we have this sort of the high ground to go ahead and expand into other segments overtime..

That's very helpful. And just if I could sneak in one more. Thank you for the helpful landscape paid for here. I was wondering how difficult or how you guys get the information from your competitors. Are you able to actually get cells and test them, and then vice versa, our people out there are able to get yourselves and test them as well. Thank you..

Yes. So absolutely great questions all. So first of all, many of the other players in the solid-state battery space are either start-ups or small research labs within the companies that published the results.

So a lot of what those guys are doing, we have directly from the source based on papers that published and tweets they've issued and websites, they put us. So we know what were the numbers are there sharing? And the other where we have mission, but this is not just by reading papers.

But -- remember when we started the company, we were looking for the solid-state material. We didn't have an answer back then 10 years ago. So we literally had to go through many, many different materials in our old lab. We went through, we made lots of sulfide, we made lots of polymers, we did a lot of work on a lot of different types of approaches.

And to do that work, we just -- we're able to first hand understand what the limitations were and what the issues were. So when people talk about the sulfide, for example, that's a pretty popular classic material.

The sulfides have one big advantage, which is that they are very highly conductive, almost as -- or they are about the same kind of purity as today's liquid electronics [ph]; that's what made them -- that's what put them on the map, people got really excited that we have solid state, which was the conduct lithium ions as well as liquid.

The problem is sulfide A) in our work just -- we could -- they will not prevent dendrites. And B) they are the least stable of the commonly used solid material.

So if you go above, say 2.4 volts or below 2.2 volts or so, you see fundamental and stability is leading to our chemical side reactions and impedance of resistance growth which have actually obviously kills itself. So the cathode and anode, both are at higher or lower voltages respectively compared with the sulfide.

So we did a lot of that work in these materials. That's what's given us the confidence to know that this is not going to be an easy problem. And people -- many people out there, many books of working on material systems. They will argue our dead ends. Well, we hope for those that they can find ways to make them work.

And certainly, the market is big enough to where multiple players will absolutely be able to play in the space. It's such a massive market, but we having other entrants is in no way going to reduce our opportunity. But beginning that we just haven't seen anything out there that's compelling.

Well, one thing we will point out is that a lot of people make claims, a lot of people have made announcements, but very few people actually have shown data. The ones that have shown data, the data makes clear that it's compromised test conditions, right.

So, if you look at the key requirements as mentioned in solid-state manifest, that's kind of an overview, you need to have a solid-state separator that can run at high current densities like you have to drive a car, and then charge fast in 15 minutes, you need to run at regular temperatures like 30 degrees Celsius not just elevated temperatures like 70 or 80 or 60 degrees Celsius.

And we have long run that has to 800,000 cycles with minimal degradation. And no single player that we are aware of other than what we've shown has shown data comparable with that. So this is also why we talked about the fact that building multi-layer cells with a building block isn't capable.

It's just a matter, it doesn't -- it's not a sound strategy. You're not going to -- if you can make a single-storey building stand up, you're not going to solve that problem by trying to make a multi-storey building.

So that's kind of how we know about these competitive alternatives, as a combination of having seen papers published by those groups directly and then our own work in many of these material systems and in our own labs..

Thanks, again..

Thank you. And our next question comes from Joseph Osha from JMP Securities. Please go ahead. Your line is open..

Hello, there. Let me add my thanks to everyone else for such great disclosure. A couple of questions. You've got -- on this chart in your industry overview showing different cathode materials.

And that kind of begs the question on, obviously you're trying to go with more of a commodity solution there, but has there been any sort of interesting learning or levers that you're finding you can pull in terms of the cathode material? And then I do have a follow-up..

Yes. I mean, I think one of the things that we pointed out is that our system is relatively cathode agnostic. What that means is, once you have a solid-state separator that works. You can use any capital.

I would go further, I would say, not only the cathode agnostic, but you could actually -- with this kind of system, you are -- you open yourself up to a broader range of cathodes that can be used in conventional cells for the simple reason that our solid-state separator provides an electrical isolation between the cathode and anode.

Now in a normal cell, if you remember our schematics from our various presentations, you have the cathode layer, you have the polymer separator which is porous in the anode like carbon or single layer. And remember that there is a -- the wholesale is flooded with a liquid electrolyte which is the solvent through lithium ions move up and down.

Well that liquid is in contact with both the cathode and the anode, which means that it has to be stable at both the low voltage of the anode and the high voltage of the cathode, and it's very hard to find materials in nature that have that wide stability window relative to voltage.

So when you isolate the cathode to just the cathode by having an electrical insulator, which is our separator between the anode and cathode, we now no longer need to have materials that are stable to low voltage. So that actually allows you to potentially use a broader -- to select from a broader universe of materials for the cathode and catholyte.

So, that was a long answer. But the short answer for the question is, is it some -- I mean, we have a lot of patents on different types of cathodes. If you look at our patent portfolio, we happen to see kind of patents on crafting tool, known as the metal fluorides which is a conversion chemistry.

Those are in some way some of the highest energy density materials effect. On that chart you're referring to -- that shows a dozen of cathode materials, those are the ones on the extreme right.

But we didn't see a need to -- yes, we didn't see a need to try to commercialize that day one because the solid-state separator with a lithium-metal anode gives you enough of a win to where we could focus and getting that to market and then having the new cathodes be sort of new materials that provide further growth from there..

And I assume your customers don't want to mess with exotic transition metal cathodes anyway..

Well, yes, just it will complicate a little bit the electrical interfaces that I mentioned earlier. So this way [indiscernible] talk a simple renovation in the pack absolute..

Okay. Second question, and in another sort of PVD and CVD, whatever processes where you're making wires of things, you add layers, things are going to always go right. But in the end rather than having material be wasted entire what you can been it depending on the amount of imperfections you've got.

So I'm just wondering, if you're looking at your process and I've got 36 layers or whatever, and if something goes wrong and layer 35 is their way of being that; so use it or do you lose the whole thing?.

Yes, it's a good idea. I think once -- at this point, we're just focused on trying to get the overall production volumes is up. But overtime that's really a great strategy that's used obviously very effectively in the world of semiconductors, right.

And if you have a unit that doesn't meet the specs for one application, but does meet the specs for different applications that's absolutely advanced [ph], and so in scrapping it you just use it for that lower valued applications. So, those are exactly kind of things that we're planning on doing overtime.

I think right now we're just kind of focused on increasing kind of the base level of production using more sort of higher people to use more automation, more kind of continuous flow throughs in the process..

Okay, great. And then my last question, sorry for the multiple questions. I know you had said that all of the initial learning is around the pouch cell form factor. I mean has there been any additional thinking on whether this could work in the prismatic or cylindrical form factor? And that's it from me. Thank you..

Good question. So, we have said that we don't expect to see the use in cylindrical form factors. Even though our separator as we've shown images is not to be flexible for ceramic, we actually have a sufficient bended without damaging film. We don't intend to actually wide it into [indiscernible].

Both prismatic pouch and prismatic can cells are very much on the radar. And at the end of the day we will work with our automotive OEMs to pick the packaging format that best meets their application.

So we're not -- with no religion on that QuantumScape, we're -- our value creation was actually are the materials that go into the battery, into the cell, how we package it. We're going to let OEMs have a significant role in helping us -- helping guide us there..

Super. Thank you for the seminar. It's great..

Thank you. And this concludes the Q&A portion of our call. I'll now turn the call back to Jagdeep Singh for closing remarks..

Yes, I mean, I just want to say thank you everybody for joining us on this call today, our first earnings call. And we look forward to reporting our progress to you over the rest of the year. We will plan using the same format for our subsequent calls. We will issue a shareholder letter that highlights the progress for the quarter.

We have a short earnings call, which will present a few highlights of the shareholder letter, and then really spend most of the time on Q&A. Look forward to continuing to work with everybody going forward. Have a great afternoon..

Thank you for joining us today. This concludes our call. You may now disconnect..