Release Date: July 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- QuantumScape Corp (QS, Financial) announced a landmark agreement with PowerCo, the battery company of the Volkswagen Group, which is expected to extend their cash runway into 2028.
- The deal includes a $130 million prepayment of royalties for a non-exclusive license covering an initial production volume of 40-gigawatt hours per year, with an option to expand to 80-gigawatt hours.
- QuantumScape Corp (QS) has shipped Alpha-2 prototype cells to multiple customers in the automotive and consumer electronics sectors, indicating robust customer engagement.
- The company demonstrated thermal stability of their prototype battery cells up to 300 degrees centigrade, significantly higher than conventional lithium-ion cells, which enhances safety.
- QuantumScape Corp (QS) ended the quarter with $938 million in liquidity, providing a strong financial position to support ongoing operations and development.
Negative Points
- GAAP operating expenses and GAAP net loss were $134.5 million and $123 million, respectively, indicating significant financial losses.
- Adjusted EBITDA loss was $72.5 million in Q2, and the company maintains a full-year 2024 guidance for adjusted EBITDA loss of between $250 million and $300 million.
- The $130 million prepayment of royalties from the PowerCo deal is contingent on satisfactory technical progress, which introduces uncertainty.
- The company’s commercialization pathway and long-term capital requirements remain dependent on the success of the PowerCo deal and other potential partnerships.
- QuantumScape Corp (QS) faces significant work and challenges to achieve their ambitions, including the industrialization of their technology to gigawatt-hour scale.
Q & A Highlights
Q: Siva, why is the PowerCo deal so significant for QuantumScape?
A: John, in my mind, there are four powerful reasons why this deal is so important for us. First, this demonstrates the value we have created for our customers and shareholders to have a solid stability in other platform. Second, by combining our unique technology with the global capabilities of the Volkswagen Group, we can get our technology to gigawatt-hour scale and into series-production vehicles as rapidly as possible. Third, this deal is non-exclusive, and it provides a template for future deals with other customers. And lastly, the capital-light arrangement that in the first and foremost, efficient allocation of our business, thanks for having 0.057 mentioned the capital-light results from most efficient allocation of [all of its goods].
Q: Kevin, how is this agreement better for investors than the joint venture with PowerCo?
A: I'm going to steal a while to talk PowerCo and QuantumScape to focus on our respective strength. Benefits of the licensing model for us include increased operating leverage, a reduction in forecast capital requirements, and an ability to utilize our partners' balance sheets. Additionally, an exciting benefit is that the potential scale of this deal is roughly four times the size of the prior JV. The licensing model creates value for both parties to start with differentiated technology. Our QSE-5 technology and its targeted benefits for safety, energy density, and power, we believe achieved that strong performance differentiation and creates an opportunity for both QuantumScape and PowerCo on an excellent financial return. In the near term, one of the benefits we discussed from our letter, it will help extend our cash runway by two months relative to targets.
Q: Can you talk in a little bit more detail about how this deal enables your cash runway extension?
A: Our forecast 18-month runway extension now into 2028, is driven by the following. First, under the licensing agreement, PowerCo will invest CapEx required for gigawatt-hour scale production facilities. The deal pays up to $134 billion, previously earmarks for our investment into JV. Second, PowerCo will contribute resources and skilled personnel as part of the collaboration, which helps reduce our expected cost to industrialize our technology platform. Third, the licensing agreement features an inflow to QuantumScape, specifically a $130 million royalty prepay contingent upon satisfactory technical progress. And separate from the PowerCo deal, we are continuing to make improvements to the efficiency of our operations. These improvements are now incorporated into the forecast.
Q: Can you tell investors anything more about the joint collaboration team and the milestones that are part of this agreement?
A: Yeah. Now that we have signed this agreement, work begins immediately. We are planning to run the giant scalability to around 150 experts. The initial team will begin the collaboration activities here in San Jose. As the technology transfer proceeds, we expect it to move to a PowerCo facility with more of the resources coming from them as manufacturing ramps up. The project plan will address all the verticals of manufacturing, process, equipment, infrastructure, and continuous improvement. In terms of milestones, these are related to QSE-5 B-sample, the Cobra process, and finalizing the target design for the cell. We will then grant the license and receive the royalty prepayment.
Q: What does the collaboration with PowerCo mean from an intellectual property perspective?
A: Yeah. We believe we built a strong IP portfolio in the next-generation battery industry. We've always been incredibly careful about protecting our IPs, and we'll continue to push the envelope on innovation to create more value for shareholders and customers. We have and we will continue to protect our IP relating the separator in its manufacturing, including the Cobra project. QuantumScape and PowerCo will jointly own new IP we create relating to automotive battery cells and their industrialization. US will remain an innovation-focused company and we will continue to develop new intellectual properties and technical know-how. For more information on the IP licensing, please do refer to our SEC filing.
Q: Does the PowerCo partnership change the B-sample timing and other commercialization timing?
A: Thanks, Doug. To the first order, we have already told you what our big goals for this year are, getting Alpha-2 to customers, making sure low-volume B-sample production's capacity is here, ramping up Raptor, and getting ready for Cobra. They don't change. For next year, getting ready for high-volume B-samples. That doesn't change either. So in a big picture, the deal has been signed and we will begin collaboration work immediately, but our goals and targets in the short term did not change.
Q: Are more deals like the PowerCo partnership likely to follow?
A: Yeah. That's a very good question, Doug. We are a very highly differentiated technology that adds a lot of value to the customer. So we expect to see a lot of interest in what we are offering. However, the model we are going with, which is a high-touch licensing model, requires that we be very strategic and improve and in our customers. So that is going to be a level of careful inspection in matching our customers' needs and us. We're going to be very, very picky and careful in the way we get to the next deal.
Q: Can you give us a sense of what you'll be charging PowerCo for under the agreement?
A: Hi, Gabriel. Thank you for the question. I have to say that things are important inputs into your modeling going into the future. We'll just point you back to the contract that we attached to our 8-K and Article III of the IP licensing agreement. It does have detail on the royalty rate and there's a section on outperformance sharing. And unfortunately, I won't be going beyond the detail of what we already provided in that contract on this call.
Q: Do you get the $130 million of prepaid royalties immediately, or are you unable to access it until the technical requirements are met?
A: So the $130 million of initial prepayment of the royalty is contingent on satisfactory technical progress being made. Siva mentioned in his remarks, it's things like those B-sample shipments, progress on Cobra, finalization of the final target cell design. To your question, it is an input into our cash runway that now extends into 2028.
Q: How will the work with the joint team with PowerCo differ from what you're already doing on Raptor and Cobra?
A: Jordan, thank you. The basic work on QSE-5, that platform is done by us here. That's what the B-sample is, the small volume
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
