QuantumScape Corp - Ordinary Shares - Class A Stock

Good morning. My name is Kevin Hettrich. I'm the Chief Financial Officer of QuantumScape. I'm joined here today by George Hart on the far side, our Vice President of Operations and Strategy, who's here to talk about our QuantumScape Advanced Solutions vertical as well as Shahar Noy, who leads our QuantumScape data center vertical. I do have a word on forward-looking statements. Basically, there may be some, and I would encourage investors to read the disclaimer as well as our SEC filings where we talk about the risks where the actuals may differ. And that would take us to the agenda.

I'll kick things off with some brief context before handing it over first to George from a QuantumScape Advanced Solutions perspective to talk about target application areas, product differentiation as well as go-to-market strategy before George hands it off to Shahar to do the same for the QS data center vertical. So to set the stage, QuantumScape began in automotive, where we work with today 10 -- 4 of the top 10 global OEMs, including Volkswagen and Honda in various stages of customer engagement. Our OEM partners are attracted to the higher levels of performance that our solid-state cell technology enables, notably including energy density, power and safety. Those qualities appeal, of course, beyond automotive.

And so in 2026, taking advantage of our Eagle pilot line and its additional sampling capabilities, we set 1 of our 4 annual goals to enter adjacent high-value markets adjacent to automotive. On our July earnings call, we announced those 2 verticals, namely QuantumScape Advanced Solutions and QuantumScape Data Center. And so it's with our pleasure together with our partners at Cowen to talk in more depth about each of those areas. So George, I'll hand things over to you.

All right. Thank you, Kevin. All right. So maybe I can start with just a brief overview of what we see as the opportunity. I think the battery industry in general, tends to focus on the largest segments. Automotive really is the dominant segment and stationary storage is probably the next one. It turns out that while each of these, what you might call emerging applications are comparatively small, in aggregate, they represent a very large market opportunity. So on the order of 250 gigawatt-hours per year of batteries going into these nonautomotive markets, that's excluding data center, which Shahar will speak to in a moment.

And then for many of these applications, the battery is, first of all, critical to the performance of the device. And also, comparatively speaking, a relatively small component of the bill of materials for that device. And so the result is that I think you see a lot less price pressure in these markets than you would in, say, traditional ESS or in mainstream automotive opportunities. So the net of that is that 250 gigawatt-hours per year opportunity in 2030 corresponds to a very significant market size as well on the order of $75 billion per year with average selling prices significantly above what you see in automotive.

In some cases, the prices are extraordinarily high for very specialty applications. But even in some of the more familiar things, consumer devices and so on, we do see significantly higher willingness to pay if you're delivering something that's really creating value for that end application. So speaking about creating value, there's really 3 things that we bring to the table. I think Kevin alluded to the company's history in automotive, and we remain very focused and engaged in automotive. But it turns out the technology that we built for the automotive world also brings a lot of value to these nonautomotive applications.

So what resonates with the customers that we're speaking to are performance, safety and supply chain. Within performance, it's the usual suspects. I think our core strengths, energy density, power density, long cycle life and so on. Those are things that allow -- first of all, you can fit more energy into a given volume and that enables a robot or a drone or pick your device to run longer on a single charge. Power density is very important for fast charging, but also for certain applications that require extreme burst of power, things you see in robotics, for example, and cycle life is, of course, important as well.

We also, I think, see a very attractive safety profile in our cells, in our testing to date relative to what you could see in a typical lithium-ion cell. We've demonstrated very compelling thermal stability and reduced flammability and abuse tolerance. And those are things that obviously matter for every application. But if you're thinking about a worn device where someone, for example, has a medical device that's attached to their body or you think about a military application where a soldier is wearing a battery pack, safety is not only important, it's really critical to that application. And we think our profile here creates a lot of value as well.

And then I think finally, on supply chain, many of our customers are focused on ensuring that they have access to a reliable source of batteries as they think about the future. Clearly, in the military, U.S. policy is focused on developing domestic sources of supply. And we didn't set out when the company was founded to address that problem. We set out to create really a dramatically better battery. But in the process, we ended up developing a material, our solid-state separator that's proprietary to us. We obviously had to make that. And it enabled a cell architecture that entirely eliminated graphite, one of the materials that is hardest to source outside of China. And of course, we make our cells.

And so the net effect of all of those things is that we have a supply chain that is less reliant on foreign sources. We make our cells here in the United States. And we have focused on developing a partnership ecosystem with world-leading players that can help us scale. And so all of those things, I think, collectively present a pretty compelling picture to people who are thinking about supply chain resilience and supply chain independence and making sure that they have access to world-leading technology without being dependent on sources of supply that could be disrupted in the future.

I've mentioned at the very beginning of this session, many of the segments. I think we are actively engaged across all of the application areas that you see here on the slide. So drones in aviation, space and robotics, medical devices, the military, wearables and traditional consumer devices. I've been really quite pleased with the amount of interest and inbound interest that we've received from leading companies across all these spaces. I'll just pick on maybe 1 or 2 examples here to give you a sense for it. I think where we can add value. So aviation, of course, there's eVTOL, 100% electric vertical takeoff and landing aviation is one area that's emerging. There's also traditional commercial aviation that's exploring concepts like hybrid flight, where you have both traditional turbines and then supplemented with electric propulsion.

And there, what matters is, well, weight is very important because you have to pay for every kilogram you lift off the ground, that really is critical, but so is safety. You need the battery to perform -- to deliver this extreme performance, but you need to do it safely. And I think often in the battery world, there are trade-offs, right? You can achieve maybe exceptional energy density, but it comes at the cost of safety. And so I think we are trying to develop a technology here that eliminates those trade-offs and delivers really strong performance while simultaneously delivering safety. And I think that message has resonated with customers.

As we talk to them, they're very encouraged and excited about the combinations of performance, safety and supply chain all in a single product. We see the same thing in wearables. People are very excited about, for example, in medical devices, having a lower profile device that is less of an encumbrance for a patient. But of course, the patient is wearing that device. It absolutely has to be safe. It absolutely has to perform. So it's a very demanding application where one of our core strengths, volumetric energy density really enables the end product to shine. And it's critically important that we deliver that performance safely.

So I think overall, the engagement has been very strong. We have a lot of inbound interest. We are working with many customers across these areas in sampling. And yes, I'm quite excited about the future prospects. Briefly, I'll just talk about our go-to-market strategy. I mentioned sampling just now. We're really focused on this activity right now. So we're engaging with lots of customers across many different verticals, providing them with cells, understanding their requirements, evaluating how our cells stack up against those requirements and beginning to think about system integration. That's sort of how you ultimately bring the benefits of this technology to life. And so we're engaged there.

Going forward, where we expect this to develop is focused more on customizing our platform. We've talked publicly about the QSE-5 technology platform. That's the core of what we're bringing to market here. But in many of these applications, there may be small differences in form factor or configuration that we want to accommodate and take into account. And then there's system integration, developing a pack or a module that fits the particular application. And that's an area where we see a lot of opportunity for joint development funded with our partners to create something that they can use directly into their system.

And then as we progress through the commercialization and qualification process, of course, then we turn our attention to scaling up. Ultimately, we want to build a big business here, shipping large volume of cells. And so we have to establish the capacity to do that. And finally, we would end up in mass production.

So do you think this would be a good chance to pepper us with questions you think would be helpful for investors?

Perfect. Well, first, Kevin, George Hart, thank you so much for doing this. Really excited to host this teach-in session with you. We already learned a lot so much, George, from your presentation. So maybe a couple of questions back to Slide 8 or 6. If you look at some of the verticals that you're participating in. I'm curious kind of which ones do you think are maybe most attractive for QuantumScape? And then on the flip side, which ones may be drawing the most interest right now from your customers?

Yes. Okay. Great question. I think one of the things that just jumped out at me since we began this effort is it's clear that the world needs better batteries. Like there are a lot of people who are not satisfied with what's available to them. They're trying to push the envelope of their own systems, and they need better batteries to accomplish that. I think some of the areas where I'm most excited are the defense engagements that we've had. I think it's clear that how we approach defense is changing. There's lots of new devices and systems coming into the market. I think we've seen really good traction with the services themselves, with the traditional primes and then also the start-ups and sort of challengers in the space.

So I think that's one area where I think there's a lot of opportunity. And it's a great area for us because typically, the requirements are demanding, and it pushes us to figure out how can we push our technology to meet those requirements. And as a technology development company, that's sort of like what we get really excited about. So I would say that's one area that stands out.

Terrific. And maybe as we talk about through defense, I think last quarter, the company disclosed that it shipped QSE-5 cells to an American defense prime. I'm curious how that's going, initial feedback? Kind of what can you tell us about that initiative since last quarter?

Yes. The engagement is ongoing. We are very actively engaged with them, having engineering calls on a weekly basis, talking through results, thinking about the particular needs of their application. And so I think we're -- that's exactly the type of partnership that we want to have. And I think we see a good opportunity for us to fill an important void for them in their product strategy and hopefully, in the longer term, convert that into a real product line for us.

Terrific. And then maybe one more on -- I think back to Slide 8 or 9, I really like how you kind of frame this from kind of the scaling and the samples all the way up to the scaling. I'm curious, there we go, kind of how long do you foresee that process? And does it differ between different verticals within kind of the aerospace division that you're kind of working through? Are some potentially faster than others? And kind of even within a vertical, every customer very kind of individualized or once you sort of get through one particular vertical or one customer in that vertical, some of the others may be a little bit faster in how they go from sampling all the way to the scale up?

Yes. Yes. Okay. Good question. Yes. I think -- I mean, first of all, every customer is different. Of course, the applications are different. They have, in some cases, standards and other things that we need to prove that we can meet. One thing that's common across all of these that we're using the same core technology, the QSE-5 cell technology that we've developed here. We're thinking about how to deploy that across all of these applications rather than coming up with something that's entirely different. So I do think that there's a lot of work and development effort that we can do once and apply in multiple places. So that's great.

I think also one of the things that I think is most exciting about engaging in these markets is that compared with traditional automotive time lines, people are generally able to move a lot faster. And so I think there's an opportunity here for us to get into these markets even ahead of our automotive time lines, and that's, of course, very exciting for us.

Yes. That's actually really interesting. And so maybe just lastly, where do you kind of see the business within 2 to 3 years? Kind of where would you want to see key milestones and different goals that you have? And how are the biggest challenges between now and then to kind of get there?

Yes. Look, I think there's no shortage of demand. I think that's been made very clear to us. I think there's a lot of interest in the technology we've developed. And so that's very exciting. I think our focus now is really on what we said publicly, which is the Eagle line, that's our scale-up development line here in San Jose that we spend a lot of time on refining processes and ultimately producing the samples that we use to engage with customers. I think 2 to 3 years down the road, we want to be shipping products to customers, and that requires capacity. And so a lot of our attention right now is focused on scaling up the Eagle line, completing the goals that we set out for the year there and then scaling beyond. That will be the key to building this into a large business.

Terrific. Great presentation. Thank you so much. I'm sure we'll come back at the end maybe for some more questions. But with that, certainly, Shahar, thanks so much for doing this. Great to see you as well. And maybe I'll turn it over to you for the data center side.

Thank you, Itay. Excited to be here today. Thank you for your time. I think it's an exciting time to be in a data center right now. And it's even more exciting to be in a U.S. start-up that wants to innovate batteries that haven't been innovated for like 30 years, right? If you think about lithium-ion first commercialization by Sony in the 1990s, right? And then we do it, again, in a U.S. company that can manufacture in the U.S., which I think becomes very, very important for the supply chain nowadays in data center. So where I want to start, I want to start with some terminology and maybe educate the audience on the different applications, different battery and storage applications inside the data center.

If we start from the left, the first phase is what we call the front of the meter. This is where the utility company comes with power, but they back up this power with BESS, with Battery Energy Storage Systems. And they use BESS predominantly to guarantee their SLA, their Service agreements, right? We need to guarantee 50 megawatts. If we need to shut down gas turbine for maintenance or whatever, the batteries can still sustain this level of energy. So BESS was there to augment, right, or maybe provide some backup for power generation.

The interesting trend now is that as we move to a BTM, which is Behind-the-Meter, because utility companies cannot bring power fast enough, right? We all read the news and see the energy crunch or the power crunch in data centers. We see now a trend that a data center builder, a hyperscaler can build their own data center and bring their own power, right, BYOE, Bring Your Own Energy. Now in most cases, to deploy energy, let's say, in less than 3 years, you need to rely on renewable energy, right, solar, wind. So then at nighttime, where the conditions do not permit you to operate your main energy engines, right, you need to rely on battery.

So this is where the battery capacity becomes a little bit bigger because in their case, they need to provide you energy somewhere between 8 to 12 hours, right, to again, to back up their main energy engines as opposed to the utility company that can need maybe 2 to 4 hours. And if we see -- if we look into this overall BESS market is quite fascinating. It's growing very fast. It's already in the hundreds of gigawatt-hours of deployment. But this market is right now very sensitive to cost, and they don't have any space constraints because you can put those massive containers anywhere in the field. Those data centers are being built predominantly in rural areas.

So this is the market that we see kind of like growing the fastest from the storage -- from a data center storage application. Where we have a bit more interest is if you go one step further to the right is what's happening inside the data centers. Inside the data center, the first stop is UPS. UPS was designed decades ago, and UPS just needs to give you a backup. We call it like a spare wheel in your car, where you have a flat tire, then you activate it, which is like once in a while. And those UPSs haven't evolved in terms of technology throughout the last couple of decades. Like some of them are still using your old 12-volt battery that you can find in an old car, and they used to offer maybe data centers of like 20 megawatts at most.

Those were the days of the Internet data center, the cloud compute data center up until recently. Average size like, I want to say, high-capacity data center would be 20 megawatts. Now as we go further to the right, as we now start talking about AI factories and AI data centers and everyone talks about gigawatt of facilities, those UPS cannot really scale unless you really increase the size of the data center, which is expensive, they cannot really scale, and we see a new trend of introducing BBUs. BBUs is a Battery Backup Unit. It's much more condensed. It can sit either at the bottom of the rack or it can either sit in a sidecar with the power supply units above them. That segment is actually booming right now.

It's a segment that was introduced 2 years ago. And this actually fits our technology, much, much better than every -- all other applications that you see here on the screen because, as George mentioned, we have a very dense -- energy-dense technology, and we have a safe technology. So this is why we decided to focus on that area. Just to give you some numbers, all of us follow NVIDIA and Jensen in a couple of like recent comments argue that the cost of compute in a 1 gigawatt data center is anywhere between $35 billion to $50 billion, 1 gigawatt. Now think about safety of all of this CapEx investment, right?

We hear now more also from insurance companies that for them to go and, let's say, insure a data center with UPS inside or BBU inside, the fact that they have lithium-ion technology doesn't make them very comfortable. And there are some cases that the big insurer will not even insure a big data center with lithium-ion batteries inside. So this is what we see as the emerging opportunity for us and the most exciting one. Now we have evidence, we'll see the next slide, we have evidence that this BBU now is being adopted by all the hyperscalers and is already on the NVIDIA planning to be included in their reference design as well.

So if you go from the left, Google was the one that published a white paper about BBU, is the one that contributed a BBU spec into the OCP, which is the Open Compute Project, which is a big standardization -- big organization to support standards for data centers. They contributed to the spec and they're in production. Meta and AWS shared images of their data centers in the last 6 months. And you can see in the white boxes here that they already deployed BBUs as well.

And NVIDIA started showing evidence of their planning in the last GTC, which was 6 months ago, where they plan to launch BBUs with PSUs in what we call the sidecar, right? You see the Kyber sidecar over there. So this is very kind of like exciting for us in terms of like seeing this technology. Now we typically get questions, you have battery at the BESS, you have a battery at the UPS, and now you have a battery at the BBU. There are too much duplications, which one will win.

What we see is that data centers are being built in a modular way and being kind of like bulletproof. There is a term called the blast radius, right? What happens if a single component fails at the data center? How the backup will kick in? What is the implications of the blast? So when we talk to the hyperscalers, the fact that you can introduce more attractive energy solution into the data center. Now they can plan the rack. The rack is the -- I want to say the compute unit nowadays. It's no longer the chip. It's not the GPU, right? It's a complete rack. So now they plan and design those racks with batteries inside or batteries next to them, and they can scale, right, every rack unit with the exact energy that they need.

With UPS, for example, it's more difficult to do it because you don't know what you would need for your next generation of racks, how you're going to retrofit the data center. So a lot of our discussions with customers also confirm that BBU might be the energy of choice in terms of like how you design within the data center. Now if we go to the next slide, we want to give you some view in terms of like how big is this market size. And what I find funny about this slide, this slide changes every 3 months.

By the time we speak, I can guarantee you that those numbers are continuing to shift to the right because there's so much investment right now in data centers for various reasons, right, whether it's like investment from sovereign AI initiatives, whether it's an investment from companies who are still exploring how they can monetize from AI or whether it's the LLM labs, right, the big AI players who continue to push the envelope, we see that their demand for power, which drives the demand for energy keeps changing on -- again, on a weekly basis.

So based on our internal bottom-up analysis, and we've done some alignment with market research that's available for us, we estimate this market, a specific indoor battery market to grow at a 39% CAGR between now to 2030. So it's roughly from $8 billion to $30 billion in battery content alone. And this is kind of like a very interesting market for us, a market that is very thirsty to new type of chemistry, new type of technology. And this is where we spend most of our cycles in terms of like go-to-market, which leads me into the next slide, which is talking about the value proposition.

And I want to emphasize 2 things that George mentioned as well, how our common building block, right, the cells that we manufacture here in the U.S. helps us across segments. So if we look into energy density and high discharge, I want maybe to explain it in a slightly different way. Energy density is like how much more liquid, right, I can push into a small tank, right? Because those BBUs are very small, right? We don't have tons of space around the GPUs and the GPU or the XPU guys ask us to see if we can cram even more. And then the high discharge is like the tap. How big is the tap? How fast I can pull current from this because those BBUs are going to be above 1 megawatt, right, by the 2028 time frame.

So the attributes that we have in the cell in terms of performance is like a perfect match to their needs in terms of like energy density and how quickly you can start this energy outside of the box. Safety, I don't need to repeat what George said, but there was a very interesting case a few months ago that a data center in India, which is partially owned by Google, was caught fire because of battery. The implication were CapEx loss and then operation loss, which lasted, I think, for almost 2 weeks and cover also some telco companies in India.

So the safety element, when we talk and we have some public information where we demonstrate that we will not go into a thermal runaway situation, right, all the way up to 300, 320 Celsius, while the incumbent, right, while the existing technology will catch fire at half of that temperature. Data centers are running hot at the end of the day. Data centers are becoming more dense. Data centers require more power. So our ability to come with a new chemistry and a chemistry that's safe also very, very -- is very enticing to our customers.

Last but not least, the supply chain. We mentioned the domestic production. We mentioned the non-FEOC partners, which is becoming very, very critical for our customers. We already hear about trends that there are certain big guys that are not allowed to source batteries from a single country. And we think that this trend will only continue and intensify. So our ability to develop the technology here to productize it here is also very, very interesting to our customers as they try to help their supply chain.

Ironically, today, the data center supply chain is more important than technology. We need access to build the data centers because if I'm missing the smallest thing like a capacitor, I cannot operate my rack. I cannot operate my data center. So the fact we're coming in with a solid U.S. story is also very, very interesting to our customers. And last but not the least is we keep talking about our anode-free architecture. So it simplifies the BOM, which means at scale, you can potentially be more cost effective than the incumbent technology.

So those value propositions resonate very well with our customers, and this is where we get -- I would say we got a lot of love and a lot of attention those days. Now I think in the next slide, which is the last one, I want to talk a little bit more about the go-to-market. The go-to-market in the data center is very, very interesting because we have to start with the specification drivers, which is the second box to the left. Nowadays, you have to be blessed by NVIDIA and Google. They're like the rabbis of the industry, right?

So that your technology can fit into the rack architecture because they want to make sure that when they spin their expensive chips and they build those expensive racks, no one in the supply chain, right, outside of NVIDIA can slow them down. So they have their AVL or semi-approved vendor list that they want every component that participate in enabling the rack to be on this list and to be blessed.

So we have to talk to them, explain the technology, explaining production plans, explaining maturity to be spec-ed in to what they're up to. Now they ask us also to work very close with the guys on the left, which is the power electronic guys and the standardization bodies, which are either technical ones like OCP or the safety bodies, NFPA and UL. Because if we don't get their stamp of approval, even if we have the technology and we have the capacity, we're not legit players yet. So part of our go-to-market is that we do the system development through the channels that you see on the left.

We get blessed by the big spec drivers to spec us in. And then we go to the ODMs or OEMs who actually build the power racks. You don't see here Dell, for example, you don't see here Supermicro because they build the IT racks, but Delta, LITEON and Megmeet, Flex, they build the power systems, which are adjacent to those IT racks, the sidecars or the power and energy boxes, which sit at the bottom of the rack. So they will do some of the buildup, they will do the integration. We will ship the battery to them.

And then the last piece is the deployment inside the facilities, right? And we work with those guys on the right as well to basically create awareness of what we do from a safety perspective because what they care, I'm going back to my insurance company, what they care is that whatever I put in my data center, I cannot wait 9 months for the power department to give me a permit to operate my data center, right? I need the insurance company, FM Global, to allow me to do this and that. So this is why we interact with them as well as part of the go-to-market strategy. So it's very complex here, right?

There's a lot of components that we have to interact with. But I can tell you that every -- like when we engage with any member in this list over here, I'm amazed myself that someone who's been around for 30 years and know how difficult it is to sell into customers is like the level of openness for new technology in the battery space because no one -- or I want to say there's not as much innovation as in other segments, for example, like compute, networking, data storage, tons of innovation. Battery, we're super excited with what we do. And apparently, there's not too many of us who are doing the same, and this is why we get a lot of love from the customers. And I think this was my last slide, then, correct?

That's right.

Yes.

Terrific. That was incredibly helpful. I learned a lot. And yes, you sort of took a lot of the complexity and made it simple for us, and that's really, really great. Maybe to start off with a question on this slide. What does it take to get into the approved vendor list? Maybe walk us through the back and forth conversations that you kind of go through and then in terms of how you're thinking about the time line to sort of make it there given that's sort of an important catalyst?

Yes. You need -- let me think how do I like simplify the answer. So first, you need to demonstrate them that you have a vision and you understand their pain. So we follow what they do. We follow what they have done historically. So we understand their trend in terms of like how much more power they need. So fairly easy for us to even estimate the things that they do not disclose in terms of like where they want their vendors to be 2, 3 years down the road. So that's on the technology side.

Then we have to come in and explain to them what we plan to do from a production perspective because, again, technology needs to be equal to supply, right? You have great technology, you cannot supply, you get into trouble. So we have to educate them about everything that we announced, for example, with PowerCo, how much capacity it can give us. We educate them about certain things that we can say under NDA in terms of like what we plan next. So we try to build this credibility between technology and supply and keep it within the 18-month window. Those guys refresh their product lines at -- I think they will push for 12-month cycles. In reality, I think with some challenges, it typically lingers to 18 months. So as long as we come in and our technology road map, our supply planning fits their window, it's easier for us to engage with them.

Terrific. And I'm curious, I get back to the addressable market slide, which is also very helpful. As we think about indoor, the BBU, who are you competing with? Once the customer sort of have a sense of the importance of thermal safety and the energy density and the output, sort of who's sort of out there or how many competitors sort of are you also kind of going up against?

Yes. So if you take the first generation of the OCP specification, which was contributed by Google, a BBU, we call it row, right, like you have 6 modules over there was roughly 20 kilowatts. 20 kilowatts in terms of like density for like 4 minutes of a backup, you can do it with lithium-ion batteries. So take the incumbents in lithium-ion, they can do it. They can work with the power system guys and come up with a solution together. It doesn't require too much of the battery space. So whatever they do from a fire safety perspective, right, unique enclosure, following up on the insurance company guidance in terms of like what type of firewalls, small firewalls that they need to put in between, they could accomplish it. So this was 20 kilowatts per row 2024.

Now when you go to the hyperscalers, they say minimum we need 100 kilowatt plus. So within 2.5 years, we jumped 5x. So 5x means that you need 5 more of the traditional batteries, right? You need to be very creative with your power electronics. And I think this is where we see that the incumbents still try to service the market. But given the attention we get from the hyperscalers, we believe they're running into some technology limitation that doesn't let them to fully answer the requirements that the hyperscalers are coming with.

Terrific. Maybe as a small aside, as we think about kind of data centers progressing in orbit, I'm kind of curious what -- if any kind of implications should we think for you on that over time?

Yes. I monitored this on a weekly basis because I'm intrigued, right? We know there's a lot of companies that talk about it. I think there could be some correlation to George's business because he's also -- his customers are from the aerospace field. I think right now, what's interesting is that the hype and the excitement are truly intriguing. But when you look into the details of deployment, I think at space right now, we're running into 2 challenges. One, how do you cool a data center in space? There's no air. You cannot blow air right in space into something that flies there in a box.

And I know there's a lot of innovation of how you can try and cool it and how you think outside of the box. You can put liquid cooling, you can put other elements, but then there is a question of maintenance. What happens if data center fails in space, right? You launch special rocket with technicians to fix it, you send robots. So I think the field is fascinating. We're in the early phase of exploring this. The big guys, I believe, will make it happen, but we don't see it as something that comes in the foreseeable future. The foreseeable future for us is like what's happening in the next 2, 3 years. So we monitor it. We're excited about it, and we'll see. It's again, exciting times to be in a data center, yes.

Absolutely to say the least. Maybe going back to the go-to-market slide, started to jump around, so such great content. I guess once you get into the AVL, maybe walk us through the process that then sort of go to the ODMs? And how long would that sort of take between there and sort of like scaling up and kind of getting kind of like revenue recognition?

I want to say it's fairly quick. It's being measured in months, right? So when -- every organization is slightly different, but most organizations focus on the next generation and what you can put in the next generation, they have subsets that look 2, 3 generations down the road, like a CPO-ish more exercise. Once you're being blessed, I want to say the transition into the builders is fairly quick because even if you go to the builders today and you tell them what you have and they get excited, they will tell you, we cannot put it in the box unless the IT rack developers, right, give me the blessing. But as soon as they give them the blessing, the following day, you have FAEs on your side, start working on the technology.

All of them -- what we find fascinating in the shift to the U.S., right, manufacturing in the U.S. In the news we just read about TSMC doing something in Arizona and TSMC now doing something in Texas. No one talks about the power system guys, which are predominantly Taiwanese. They already have massive assembly sites in Texas. They have massive research centers here in the Valley, Silicon Valley. So those guys can show up in our production line the following day. I'm not joking. We had one case that a big guy referred us to one of those guys of the power system. And the following day, we had a call and they say, "Hey, we're driving distance from you if we need to be on site."

So I want to say things happening really quick. There's no like playbook or a process that you have to follow because I want to say the challenges of compute nowadays are so big when you look into those GPU announcements, the XPU, the GPU announcements that they are learning their own specs on the go. So suddenly within a week, their specification can change and now they need to rely on the new technology and they're willing to work with you closer, right, to enable your technology.

So I want to say we measure life here in weeks and months. It's not in years. And once you engage going back to the other part of the question, we see that the design-in cycle. So spec-in is one thing, right, with the specification. Then you have the design-in, you have the qualification. They try to do it in 12-month cycles, right? So you can be in production on the next platform. So things are moving for us fairly quickly.

Similar question I asked George, where do you kind of see the business in 2 to 3 years, key goals and milestones? And for you, Shahar, what are the challenges and worries you might have in terms of getting there?

Yes. Let me start with the challenge. I think the challenge is like George, we need reliable cells at volume, right? If you think about the magnitude, the size of the cells in a rack, it's almost like half of an EV car, right? It's not like an EV but half of an EV. So it's still significant, but it's not something that you can argue outside of our capabilities down the road. So if you take this in terms of like if we can get the reliability up, getting more volume out of our production line, this will be a massive enabler for me, right? So that's the challenge.

Your other question was the 2-, 3-year time frame, correct? What will be a win? What will be -- what would look good? I need to make Kevin happy, right? So at the end of the day, it's like we're trying to get into like a meaningful market share. I came from a semiconductor background. We were always measured in a double-digit market share. I think it's the same plan here.

Given the fact that BBU is in its first inning of technology, right? We just showed that all the hyperscalers started adopting it. Google, I think their first white paper was contributed in 2025. It's still an early market. So with our ability to execute on the technology, get production, right, in place, we think that -- and the unique chemistry, right, the safety element, the density, the fast discharge, we think that we're uniquely positioned to drive this segment.

Terrific. Shahar, George, has been absolutely incredible. Thank you for all the great insights in this teach-in. Maybe, Kevin, I'll turn it back to you just for any kind of closing remarks, any key messages for investors coming out of this. It's certainly been enlightening for us. But maybe I'll kind of turn it over to you for any kind of final messages.

Thank you for having us today, and we hope it was useful as we talked about the applications, the markets, the differentiation and how we plan to go to market. And each -- as you hear, there's no shortage of demand. And I think the company is really focused internally on one of our other annual goals, which is the bring up of our Eagle pilot line and the demonstration of its scalability. So all roads and all verticals pass through that. So we'll continue the conversation in a few weeks on our earnings call where we hope to have nice things to update.

Terrific. We'll look forward to those updates as well. But thank you all so much for spending time with us today, for educating us and for the great materials. It was very helpful. I'm sure it will be very helpful to investors as well. Thank you again.

Thank you.

Thank you.

All right. Good morning, everyone. For those that don't know me, Andrew Percoco, I cover Autos here at Morgan Stanley. Very pleased to be joined by Kevin Hettrich, CFO of QuantumScape. So thank you for joining us this morning.

Before we get started, just an important disclosure here. So please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley representative.

All right. So maybe, Kevin, just over to you in terms of anything you want to share before we get into the questions in terms of the story, where you are in the commercialization process. And obviously, the business model is evolving. So I'm sure we'll talk about that. But I just want to turn the floor over to you in terms of any initial remarks you want to make.

Yes. So for folks following the story, we're working to commercialize solid-state lithium metal batteries, which have compelling advantages in all the things you'd care about, smaller, lighter, faster charging, safer. And for those following the story more closely, some of the recent announcements, we started a highly automated pilot line in San Jose called the Eagle line.

On the last earnings call, we announced two new customer verticals alongside automotive, where we've historically focused. We've now added Data Center and a vertical called Advanced Solutions, which includes things like aerospace, defense, robotics, consumer electronics and medical devices.

And back to automotive, we announced in June a multiyear research agreement with Honda, who together with Volkswagen, are 2 of the top -- those are 2 of the 4 top 10 global OEMs with whom we work. So there's some nice momentum there. So that's a nice kind of initial framing. I'm confident we'll get into all those things with conversation.

Yes, that's great. And maybe just to set the stage in terms of where you are in the commercial process on just the automotive side of the business in terms of ramping up cell production and can you kind of go from there?

We've announced our first product, the QSE-5. That is just over 5-amp hour cell. Some of the advertised specs are 844 watt-hours per liter, 301 watt-hours per kilogram. That cell charged between 10% and 80% of state of charge in 12.2 minutes. And as we talked about in our recent shareholder letter, when we do side-by-side testing with lithium-ion of different, kind of, chemistries and form factors, we see equivalent, if not superior safety performance for the cell.

So we're very excited by that cell performance, so are our partners. We've worked for a long time with the Volkswagen Group. They have invested over $300 million in the company over private rounds and then as a public company, making a contribution under our current collaboration and licensing agreement.

In automotive, we have a very capital-light approach. The business model is, kind of, twofold. One is to work with top-tier customers who then pay us to do specific developments, demos and sampling. And the goal there is to do confidence building and to help train them and do technology transfer to shift to the licensing part, where the cash inflows are -- the potential is quite a bit higher and those would accrue to us on successful transfer of our technology to their factories.

So as I mentioned in the opening remarks, with 4 of the top 10 global OEMs, we have nice geography coverage between North America, Europe and Asia, amongst those top 4.

We -- together about a year ago at the Munich Auto Show, together with our partners, VW's PowerCo, provided the cells into an Audi designed pack that went into a modified Ducati V21L race bike, which went across the stage at Munich Auto Show. So that was our first vehicle demonstration globally of our solid-state battery technology, in a very emotional moment for us to see kind of vehicles powered by ourselves on the -- in the public eye.

And since then, we started our pilot line in February, which, together with the product -- the QSE-5 product, of course, the ability to make it, kind of, scalable at quality is important. And the focus of the team since that February point has been on bringing up that line and tracking to both internal and external metrics for it.

We mentioned on the earnings call that we're achieving 90% uptime on the equipment, which is a nice, kind of, marker. We're seeing more process stability. And we set out a goal relative to Q2 '26 production, kind of, pilot line type output levels, we want to double that before the year-end.

If we're able to double that, we see it, kind of, tracking and having satisfactory output for all the breadth of customer demand we're endeavoring to undertake.

And what would you say in terms of your ability to achieve a doubling of capacity of your production? Like, what are the gating factors? I'm sure there's many, but if you can just maybe list off what the top ones are in terms of your ability to get there?

So it's -- they're internally focused is a good way of saying it. So further increases to uptime, yield and process maturity and effectiveness are the ways to get there.

So I mentioned, I think, on one of the recent earnings calls that the CapEx you see us incurring is generally not for the Eagle line. It's -- we're already moving beyond our QSE-5 road map and to invest into subsequent, kind of, product generation. So here, it's continuing to get more and more and more out of the existing equipment that we've put in place. That's true of the broader Eagle line. That's also true of our Cobra separator process that's a subcomponent of that Eagle line.

And then on the PowerCo, you recently amended the agreement. You made some changes to it. Maybe just walk through the rationale behind why you made those changes? And ultimately what the goal is behind the new structure with Volkswagen?

Great question. So to take -- in 2024, we announced a license -- the collaboration licensing agreement with VW PowerCo. The goal of that remains unchanged is to commercialize QuantumScape technology into the VW Group to make compelling vehicles under their brands.

That remains the same. They have two members on our Board. We have a team from PowerCo on-site, working shoulder to shoulder on that line. There's $130 million prepay on triggering of the licensing part of the contract. All that remains the same.

In 2025, we added collaboration cash flows to it. That agreement in 2025 was up to $131 million. And it had a number of things that we jointly said, "Hey, if you accomplish this, do you get paid that" type of a structure.

So if you fast forward to 2026 and the recent amendment, a few changes. One is that we reworked what those milestones were. What we found is that for the consumption of materials and labor and equipment to date, it has been less than what was originally contemplated. That was one source of savings.

And the second is one of the deliverables was to support the MotoE race program, which is something that was canceled that has no -- not due to us, the race organizers canceled that for their own reasons. So we had deliverables tied to that, that also went away.

So for two of those reasons, we brought down the total billings to then fit the new scope of work. We refocused it on more automotive and less kind of bike at that point because we took away the MotoE. And we also added deliverables from our next-gen, kind of, road map on there.

So the total billings went from about $131 million, closer to $75 million. We commensurately brought down expense. So it's kind of cash flow, kind of, neutral from both of our sides.

And then as a secondary implication by, kind of, freeing up some deliverables that would have been more bike focused. All that capacity we can then reuse for other things, be it for VW, be it for Honda, be it for those other OEMs, be it for those other verticals. So some of the overview and how the numbers kind of work.

Makes sense. And when it comes to manufacturing, you briefly touched upon doubling production in the second half of the year. As you've moved from, kind of, preproduction lab testing to the production process, what have been the biggest learnings?

Because ultimately, it feels like that's where the biggest problems arise is really taking it from a lab to scaled-up production. So what are, like, top 3 learnings that you would say you guys have come across as you started that process?

That's a good question. So the one learning that I would share that the Head of our Board, Dennis Segers, and our CEO and COO, Luca mentioned, is that you really don't know what you have until you've built 1 million of it. The benefit of just producing very high volume of a part quantity is you get really nice statistics in terms of different, kind of, failure modes, sources of yield loss, et cetera. So I think the -- just having a highly automated pilot line gives you both more stats and also much more repeated learning.

And we've seen it really accelerate the speed with which we can, kind of, characterize root cause and eliminate things, which is there's a very like iterative cycle with which you refine things. So I think that was a pleasant surprise to the team, just how, like, powerful, like, that capability has been.

Two is just that, like, there is a -- in hard tech, it is not a trivial task to take a tool and then to -- that is designed to do a higher volume of something that's more innovative. Just for the room, I've, kind of, binned the equipment that we use, and it's something that's like fairly conventional looking, something that's kind of maybe a little more customized to us. I put, kind of, in the first category, I put the cathode I put testing.

In the second category, it's, like, okay, we do stacking, but it's specific to our form factor. That's maybe a little more conventional lithium-ion, but the specs are, kind of, tied to us.

And then the third bin are things that it's a pretty innovative piece of tooling that I would, kind of, put Cobra. So for equipment development is hard, like you take specs, it shows up, you derisk it with kind of proof of concept. So -- there's no way around that systematic, methodical, iterative work. You, kind of, get the tool in, you learn from it, you quickly respond. And, like, that is the way with which you come down the learning curve.

So maybe the second lesson is just -- there's real work there, and it's all about having a good team with cycles of learning, supportive set of ecosystem.

And then do three, if you have two, that's good, too.

Okay. The third thing I'd say is just that we've gotten really positive feedback from our customer partners from other verticals and from our ecosystem that's named and unnamed. So I think the team is pretty proud of what we've created. And as a reminder, the technology platform is the cell and it is all of the means of making, which is the equipment, the processes, the materials and the, kind of, the supply chain under it.

That makes sense. And speaking of other OEMs, other partners, you recently announced Honda. What this bring us into that conversation? Why were they interested in the technology? And was there a common denominator between the conversation with Honda and Volkswagen? And can we expect that to be true with the other OEMs? Or are the OEMs all approaching this in a fairly unique way in time line?

The thing that is the same is that solid-state lithium metal chemistry can make very compelling products, like, for an automotive company to say I can simultaneously improve range, power, safety and life is simultaneously is a very exciting thing.

Automotive companies think in, like, generational-type time lines that maybe directionally $0.5 billion to $1 billion to do kind of a new product platform. And if you can have -- it's very hard to get significant differentiation on your powertrain versus a, kind of, a peer. So we continue to get wonderful, kind of, traction within automotive partners.

The way that, that played out is we had been before the Honda, kind of, announced the relationship publicly, we've been working with them for some time. And as they saw us making progress like the announced the B sample, the Raptor and then the Cobra innovation to the separator process. The V21L race bike at last year's Munich Auto Show, the start of the pilot line, all of the -- in the background engineering conversations.

We did mention in that press release that they did a quite thorough around-the-world comparison and technical evaluation. Honda, of course, is a leading automotive company. And they themselves have had pretty significant internal investment into solid-state themselves. So I think they're quite qualified and knowledgeable. We're very pleased that, that was the result of the announcement of that multiyear agreement with us.

So each of the pieces of progress we make makes the time to convert a little more quick, I would say. So we are building up the foundation. And for someone to come in and quickly get credibility, it's just easier and easier. It's, like, here's the cells, there's the line, here's the road map, here's the next steps.

And you mentioned Honda has invested in this technology, and they've looked at it, is there any synergies there in terms of what they've done and bring it to the table in terms of what you guys? Or are they just essentially saying, okay, you have a better technology. We're going to start from scratch and go with your approach?

I do not have anything to add to that conversation today. It's an excellent question. The other -- so maybe more to come on that. The other piece I would highlight is that Honda in their communication, of course, they're a leading automotive company. They also do have a breadth of other portfolio offerings, which do line up with some of our other business units. So there's an opportunity both within and outside of automotive.

That makes sense. And when you think about adding additional partnerships, additional OEMs, what's the balance in terms of adding a bunch of partners, but also being able to be nimble, make changes and course-correct as you inevitably figure things out as you start to scale production. How do you, kind of, think about balancing that? And what's the sweet spot?

A great question. Four, we've achieved a number of things within the existing 4 top 10 OEMs. We have geographic diversity. It's a pretty good share of the world market just between the 4 of them.

So not that you couldn't increase, kind of, close partnerships from there, but we're, kind of, at a point of like each one is such a massive economic opportunity, like that we're probably at a pretty good number, like maybe you could strategically, kind of, make some small additions, but this is a wonderful, kind of, core set of partners to work with.

That's great. And when you think about the competitive landscape around solid-state, just batteries in general, but, like, let's hone in on solid-state. There are others out there, CATL, Samsung that are trying to commercialize this technology.

And I think whenever someone hears how CATL is doing it, that's an obvious risk in some minds. How would you answer that? What's your -- what's your position in terms of the competitive moat that you guys are building around your technology versus the larger players in the space?

First, lots of compliments to CATL, dominant player in lithium-ion industry, the speed with which they've hit scale and quality and also done engineering at the systems level to, kind of, mitigate some of the volumetric energy density weakness, hats off to all of those things. And they are the name to track within lithium-ion, especially in iron phosphate, kind of, chemistry.

With solid-state lithium metal, it is a different chemistry. The act of removing the anode entirely gives you a structural advantage in terms of weight and volume. You've taken out material. You literally have nothing there as manufactured. So that's weight and volume.

Power, there's -- again, it's a structural advantage. Your lithium-ion doesn't have to travel as far to plate. And for those a little more in the weeds, you don't have to slow down the rate of charge at higher states of charge to wait for it to diffuse into an increasingly, kind of, populated anode. For any of those who drive electric cars, who, kind of, notice around 50% or 60% the rate of charge starts to slow down.

And what's going on is, as you are -- if you're a lithium-ion kind of charging from the cathode to the anode side of the battery, you need a little more time to diffuse into a spot in the anode that's kind of not yet occupied. We don't have that. We just plate lithium metal.

If you look at our charge rate, we go, like, a flat line up to 80% at which time it slows down because we don't want to damage the cathode behind us. So weight, volume, power, safety, today's anodes are full of flammable material and the separator material that porous plastic itself is flammable. So we're removing the former and replacing the latter.

And then life, one of the major sources of life loss is in that set of materials that we remove. So it is a structural advantage where we are no longer -- we're not competing on cost. And it's a new category that we see as -- we think there will always be an appetite for higher performance in all of these application areas.

And as you get to scale, because these advantages come from the elimination, we see a cost-competitive, if not cost advantage when we get to kind of higher scale. So it is a different thing.

So that said, the proof is in the pudding. We in our investor deck plot the world's prototype results onto a single chart, I highly recommend that slide. It's one of the favorites among investors.

What we say is just put on one chart, how many times you can cycle at a relatively, kind of, fast rate of 1-hour charge, 1-hour discharge before you lose 20% of capacity. That's basically the definition of automotive life.

And then to do so with no excess lithium because that cuts against the reason you do it. And then reasonable temperatures or, kind of, pressures, or at least we have different colors on there. If you've got very high temperatures of pressures that probably are not consistent with the product, we put you in red. If it's something you could do in a system, put you in blue and then if there's room temperature and no applied pressure, put you in green.

Long story short, we're ahead of everybody by multiple dimensions. CATL got on to the map for the first time, I think, last year, but is in the 2-plus hour type charge times, I think it was at 500 cycles. And then many of those folks are using materials that you can never say never, but in our experience and belief may not ever hit the types of performance levels we've achieved because we have experience working in those.

So there is room for multiple winners. But as of today, we're ahead of everyone on multiple dimensions at the same time. And that's before they've invested in, okay, let me make larger and multilayer cells and kind of invest in the method of making.

We don't have a monopoly on all the world's smart and hard-working, kind of, people, certainly not from it. Our goal is to commercialize as quickly as possible and then to replenish the road map and to, kind of, move on to the next thing. And that is the path to success as an innovation company.

Yes, that's great. And then maybe just switching gears to some of the new verticals that you recently started to talk about.

Maybe just talk through what you see as the most attractive, kind of, opportunity for the technology, but also like why now, right? You've been focused on automotive for a long time. That's been, kind of, the North Star for you guys. Why is now the right time to be looking at other verticals within this technology?

Choosing between children is a difficult thing. I'll do my best. The why now part is the easier one. It's no coincidence. We started talking about adjacencies to automotive exactly at the same moment we started up the pilot line.

To date, we've not had samples that we could get out of -- like our samples are oversubscribed within our existing, kind of, automotive partners. And it's only now with the pilot line and its ramp-up that we've got the bandwidth with samples to engage more broadly.

The two verticals that we announced, one was QSDC, QS QuantumScape, DC stands for Data Center, and then QSAS, which is QS Advanced Solutions. George, I think, just put out a video last week, talked about aerospace and defense, robotics, medical devices, consumer electronics.

When you have cells that are compelling on everything you care about, smaller, lighter, faster charging, safer, longer-lived. It is unsurprising that anything that wants a battery is a candidate to work with that.

So we chose things that are adjacent to the QSE-5, utilize the same platform where we believe that there's very strong customer demand. And maybe I'll touch on each of them in a bit more detail.

So let's start with data centers. Very importantly, we are targeting not -- we're targeting inside the building, in fact, inside the rack. There are existing architectures as of today or technically as of yesterday, Amazon announced one too where there are architectures where they want to put battery backup units, BBUs, either into the rack with the GPUs or adjacent to it.

The reason they want to do that is because they are asking that battery system to do two things, to provide 2 to 5 minutes of backup and to improve the power quality to the GPUs.

If you can give the GPUs exactly the kind of volatile power amps that they want, there -- you can get the most out of them, and you can effectively get more revenue out of your GPUs if you keep them with exactly the power demands they ask for.

So why would you do it there as opposed to supplying it centrally? Two reasons. One is performance. If the power amps were changing that quickly to do so from a distance is difficult, if not potentially outright impossible. And two is if you just think of like the I 2 R losses supplying, kind of, copper cables at huge distances, it gets uneconomic for CapEx and also just for efficiency reasons.

As soon as you go down the path of -- Amazon yesterday announced what I believe is called the TRN3 where they're putting battery backup units on the top and the bottom.

As soon as you put batteries into the cabinets or adjacent to the cabinets, it is intuitive. You want them to be small because that's opportunity cost, you can use for other GPUs or power electronics. You want them to be powerful because they need to do their job and you want them to be safe for all the intuitive reasons. And as I mentioned, we think that combination is a really compelling fit with our chemistry.

On the last earnings call, we said that it's early days, very exciting. We're having conversations both with the people setting the architecture as well as the ODMs who would be supplying those cabinets. Our focus is on having the discussions in terms of here's the spec sheet of our cells, what do you want? What are your use cases? Doing those use cases, collecting feedback and I think forward signals of progress you should look for is, like, what's the sampling? Are we making progress in terms of the integration of our cells into the end kind of use of either, like, racks or cabinets?

And then can we show that we're maintaining the really wonderful aspects of the QSE-5 in that system, kind of, configuration where we're performing data center type use cases.

So very, very exciting. There's -- we believe the qualification can be faster than automotive. So -- and we would estimate internally in the 2030s that this could be a low single-digit billion dollar type opportunity and growing rapidly after. So very exciting.

Switching gears to the QuantumScape Advanced Solutions. We mentioned on the earnings call, we shipped cell samples to a U.S. defense prime. There, we see -- again, depending on the defense application, we see a combination of different interest, but it includes things like volumetric and gravimetric energy density, safety, as well as the fact that we eliminate graphite, we have no anode. China supplies 95% of the world's graphite. Last year, in a moment of tension, it was something that was threatened, the cessation of graphite export to the United States as just a point of leverage between the two countries.

It is highly desirable to take that reliance to nothing. So that within defense, in particular, is noted for reasons of intellectual property protection, we've tended to -- well, we've been very thoughtful about, kind of, partner selection. And with the expense -- with the exception of, kind of, off-the-shelf type products we could get from lithium-ion, we don't engage in, kind of, substantive types of purchasing kind of out of China for IP reasons.

The result of the separators, of course, is proprietary to us. So eliminating graphite, the separator is proprietary to us. And then for IP reasons, we have the opportunity to be like the poster child of non-FEOC kind of cell and push that, how you define that deeper and deeper and deeper into the supply chain.

So the combination of performance plus that elimination of anode is getting some real kind of resonance on the defense side.

Within -- and there, I think you have some of the fastest qualification times kind of possible. But because that's a bucket that captures so many different things, you have a real diversity of applications and a real diversity of time lines, but some of those can be quite fast.

And on the qualification piece and the time-to-market commercialization time line, obviously, I think we can all agree that a data center developer probably wants to move a lot more quickly than an automotive OEM, who's thinking on a 5- or 10-year product refresh cycle.

So when you talk about data centers and even advanced solutions being potentially quicker speed to market, is that a function of the technology is actually easier to solve in those applications? Or is it mostly a function of, like, those customers are just moving at full speed and they're just going to drive that commercialization process as quick as possible?

Moving at full speed and then may have reduced specifications because in automotive, it's 10-plus-year life. If you're driving electric car, you want many hundred thousand kind of miles. So the product qualification to confirm your product meets those standards by its nature, kind of, takes longer. So I'd say it's a combination of all of those things.

We have kind of strong belief that the QSE-5, as developed for automotive is very compelling across that, kind of, core of attributes. And now it's precisely when we get into the detail of the, kind of, specs back and forth and the sampling, we've tested all sorts of varieties of automotive use cases, new to us will be the data center one. So this is exactly the type of engineering conversation that is kind of going on as we speak.

That makes sense. And I guess when you think about the nature of the business, you've emphasized this once, you want to be capital-light licensing; does that change at all with data centers and advanced solutions? Is there, like, a PowerCo equivalent that we can think of in the data center market? Just as we think about, like, the financial profile of the business and the capital needs and the capital intensity, how does that change, if at all, with these new opportunities?

Yes. So on the supply of cells to these new areas, our existing PowerCo contract allows them to be a producer. We have, kind of, more to come on how we supply that. There's a number of conversations going on in the background. So more to come on that for the source of supply, especially as we want to move quickly into these new markets.

On how does the economics, kind of, change? We talked about under automotive, two different streams of, kind of, cash flow. One is during that collaboration phase, we're getting paid to do development and demos and samples and then the longer-term licensing one.

I would maybe make two comments. One is that it's exciting early days. So in terms of contrasting which one could be more or less attractive or how they differ, I would punt that to a little later when we've had some more of the conversations.

The thing I would emphasize is that we are utilizing the same technology platform that's taken us capital and time to develop. Included in the guidance we've provided this year are go-to-market sales and some amount of vertical-specific engineering resource. In the scheme of things, that's all incremental to the technology development. We think these incremental opportunities are very much good for the company and good for investors.

That's great. Maybe we got 3 minutes left here. Any quick questions from the audience?

All right. If not, we're sitting in here in a year from now. What would you like to be saying to the audience as it relates to auto, data centers, defense? Like, what's the dream scenario in terms of what you've delivered over the next year?

Well, I'm going to give you a non-sexy answer. I would say that I would be tickled if we've knocked it out of the park on the Eagle pilot line. The reason is because all paths through commercialization through any of the customers and any of the verticals have us executing that pilot line well in terms of our internal, external metrics, figuring out the blueprint and the supply chain, kind of, decided, that is the core thing on all of the successful journeys.

And the speed with which we do that and the quality with which we do that, those cell samples are exactly the currency we use to, kind of, drive these forward. So that's the thing. I think is, like, the core thing to get right, and I think sets up for all those exciting opportunities in all three verticals after.

All right. Well, looking forward to the conversation next year.

Perfect. Appreciate it. Thank you.

Thank you, everyone. Thank you.

Good morning, and welcome to JPMorgan's Auto Conference. My name is Bill Peterson, and I'll be hosting Kevin Hettrich from QuantumScape. He's the CFO. We don't have any slides today. [Operator Instructions] Kevin, thanks for joining the auto conference. Appreciate this. And maybe just as an introduction for those less familiar, can you provide a brief overview of QuantumScape, the core technology and what's your view as maybe some of the key misunderstood points about this?

Terrific. Good morning to those in the room. Thank you, Bill, for hosting us here at the conference. QuantumScape is the leader in solid-state lithium metal battery development. Solid-state lithium metal is a type of chemistry beyond lithium ion that carries advantages in everything that customers would care about. It's called solid-state lithium metal because the solid-state part, a thin ceramic separator sits between the 2 active materials in the battery and lithium metal because when you charge the device, lithium is stored in a pure metal form as opposed to lithium-ion, which is a conventional batteries today.

The ion part of lithium-ion speaks to a host material that's all around it. And because it's stored in a pure metal format, it's the elimination of that host material that leads to all the advantages of our battery chemistry, smaller and lighter, faster charging, better safety performance, lower cost at maturity and scale. So where we are as a company, we've been in a development and commercialization of this new chemistry.

We announced our first product in 2024 at the Automotive A sample type product range, the QSE-5. That's an 800-watt-hour-per-liter cell with -- more than 800-watt-hour-per liter-cell with more than 300 watt hours per kilogram, charges in about 12 minutes from 10% to 80% of improved safety performance, which is better than anything on multiple dimensions you'd find in the market today. We've historically focused and continue to focus on electric vehicles. We've had a long-standing partnership with Volkswagen, where we have a collaboration and licensing agreement up to 85 gigawatt hours of scale in the licensing agreement.

We're in the collaboration phase. We're getting paid to do development and sampling and demos on their behalf. We have a team from VW PowerCo working alongside of us on the pilot line that we just started up. We work with 4 of the top 10 OEMs in the world, VW is named. Honda, we just -- they named themselves in June. We can talk about that a little bit more. And with the start of our highly automated pilot line, the Eagle line in February, we have additional sampling capacity, and we announced 2 new customer verticals, one in data centers and one in advanced solutions. And it's from that vertical that we sampled to a U.S. defense prime that we talked about in the last earnings call.

So that's -- the other thing I might highlight, a capital-light business model. So we get cash 2 ways. One is we get paid in the current moment from partners and ecosystem players who are paying for sampling demos, custom development. And we're setting the foundation for much larger economic opportunity, which would be licensing upon successful transfer of the technology to their factories. So cash in 2 forms, and we avoid gigawatt hour scale type CapEx.

You asked about some things that are maybe underappreciated and not intuitive. So we've done $40 million in cumulative customer billings to date. That's worth highlighting. The -- we did $19.5 million last year. We're already above that. I think like around $21.8 million this year. The advantage we have in the chemistry is pretty fundamental. If you -- we're very proud of that technology platform, the patents and trade secrets on it. And that is strongly counter positioned like to try to replicate that, you'd have to start a new company even if you navigate all the patents and trade secrets and then the growing customer and partner ecosystem. That's kind of a nice teaser from there.

No, I appreciate that introduction. And for those who came in the room earlier, we can take questions using the microphone. But maybe you've been at the firm for more than a decade. So -- but maybe just looking at the last year, what has been some of the more important changes, whether it be organizationally, commercially or technically? And what does that enable as we look ahead to next year and the years beyond?

Yes. Great question. So just a little less than a year ago, we, together with our partners, VW, PowerCo and Audi were one of the highlights in Munich Auto Show, where we powered a Ducati V21L race bikes across the stage. That was our first vehicle demo for the company. And then just a quarter or 2 later, started up a very highly automated pilot line in our Eagle line. That's important, arguably one of our most important focus areas as a company because all commercial roads go through that.

Industrializing that for the next level of scale in terms of process and equipment supply -- equipment design and supply chain development is critical for all paths of commercialization. It provides higher sampling volumes for Volkswagen, for Honda for these 2 other top 10 global OEMs and for these new verticals. And then finally, for the tech transfer itself, when we have partners and customers on site, that's the line from which we can teach from and design the future.

Yes. I'm going to move to, I guess, manufacturing and maybe let's start off with the Eagle pilot line. Maybe you can kind of explain the significance of having the Eagle pilot line in the Bay Area and whilst demonstrating scalable production remains a critical goal this year. And I have some follow-ups as well.

Yes. There's a saying that goes around Silicon Valley and our Chairman of our Board, Dennis Segers and CEO, Siva Sivaram talked about a lot. You don't really know what you have until you build 1 million of it. As you get higher volumes, you get statistical confidence intervals around failure modes, and it really hones in the -- Siva also will repeat systematic, methodical iterative.

And we're in that mode of once you've established a baseline of volume, the way you come down a cost curve, the way you drive quality, the way you improve operational metrics is just to produce a lot of parts, identify kind of common causes you want to eliminate, you eliminate them, you root cause them, control them and you move on. And like that is the wheel of improvement.

And that really requires and is best supported by automation because you're able to do that, things are done in a very repeatable way and you get nice part counts and you get kind of nice signal. So that was a big deal for all the reasons that I mentioned, it's important and is a really important stepping stone for the company.

And we -- one of the thing I would highlight in the capital-light model is we're working with arguably the world's #1 and #2 suppliers of ceramics in that of Corning and Murata to have them produce at gigawatt hour scale, our separator to supply to different cell manufacturers like a VW PowerCo. We think that's the best of both worlds. We know our material system. We know the processes. We know the equipment design to this level of scale.

Of course, your Corning and Muratas know how to -- have a lot of experience taking the technologies down that kind of cost curve as you reach new orders of magnitude. And that's kind of capital efficient [ rate ] kind of a bull's eye on our capital-light model.

So in addition to, I guess, the partners you have on the supply side, when we think about production, what are the key metrics that matter, uptime, yield, throughput? And I think you've talked about uptime of like greater 90%. What are the next, I guess, things under control that you're looking to improve?

If I point investors to 3 separate things. One is there are internal metrics. All the ones you named are things that we track. We did talk about in the last earnings call as a measure of the Eagle line kind of becoming -- the process becoming more stable. We are achieving uptimes of more than 90%. We do plan on continuously improving everything in that systematic, methodical, iterative style that I mentioned.

The second is output. As we make improvements in those metrics, output will rise. We said a goal on the last quarter was to double the Eagle line output from where it was in Q2 over the rest of the year, that's a sign of maturity of us making process -- of making progress on the process as well as that sampling volume can then go to your Volkswagens, Hondas, the other OEMs and these 2 other verticals. So that's important.

And then the third thing we're just talking about some of the broader ecosystem, continue to make progress with Corning and Murata. And in a success case, you'll hear us making announcements in other parts of the supply chain for materials and equipment. We did mention on the last earnings call, we're working with leading suppliers of equipment to design the future higher scale version. So we have a blueprint to give to partners.

Maybe sticking on that blueprint, I guess, what have you proven internally that makes you confident that a partner can replicate at a higher scale? And I guess maybe with that, like how much of the process is sort of similar to an existing process?

Great question. Let me start with that first. In a conventional lithium-ion plant, it really does 4 things. It makes a cathode, it makes an anode. It assembles a cell and it tests the cell. If you look at our process and then it imports the separator, it buys it. If you look at our process, we have no anode. All that equipment, all that bill of materials goes away. We have -- you can think of the cathode as being effectively conventional. The cell assembly, we stack. There's a combination of practice cylindrical cells are generally wound and then others stack or kind of do a process called Z-folding, so we stack.

We would share the testing step except we simplify it quite a bit. Those lithium-ion cells upon being assembled and the liquid electrolyte put in will often sit for weeks as they're put through a charge and discharge cycle that helps form a passivating layer on that anode host material. It's called a solid electrolyte interphase. It chews up a bunch of active material. It ties up inventory and it's in pretty expensive equipment.

I recall Tesla during their Battery Day some number of years ago pointed that is actually the most expensive factory. So we don't have an anode host material. We don't have a liquid electrolyte in the anode. So we can -- that basically becomes a quality control step for us. And then for us, the separator, you can't buy, we innovated on it. So that's why we're training up Murata and Corning. So that was the second part of your question. Remind me the first part.

Well, I guess what gives you confidence that you can replicate?

Yes, the blueprint. So it's -- is it Georgia, which is the Show-Me State, which one?

That's Missouri.

It's Missouri. Missouri is the Show-Me State. So there's an element of that Show-Me State theme of buy the equipment, develop the process and let me see it. So that's certainly part of it is partners and customers when they come visit the facility, they can see with their eyes every step, every tool, how it's made, the performance of the cells. So you can see where the bleeding edge is today. And then it's based off of running that equipment, identifying things we'd like to do different and better that leads to the next level of design.

And it's actually working off of that line where we're working with the rest of the supply chain for materials and equipment. So it's kind of 2 parts. You can see that Show-Me feel. And then in working with the vendors, and you would recognize many of the names that we're working with because there's pretty good overlap from leaders in the lithium ion equipment space and then leaders in the ceramic equipment space is kind of who you'd expect we'd be working with.

Yes. So you described the capital-light commercialization approach. But I guess in practice, does this mean -- I think you alluded to as well, but licensing, JV manufacturing, tolling supply agreements, some kind of mix. I'm just trying to get a sense of what would be more like internal versus partnered out.

Great question. So our internal focus what's core to us is development and taking things to a pilot line level of scale. At that point, development in this space is so intertwined between chemistry, between cell architecture, materials, process, and equipment, very independent -- interdependent. And as a result, it makes a lot of sense to do all that work under the same roof.

Beyond a pilot line level of scale where you've shown it on a highly level -- on a highly automated set of equipment, it's repeatable, you then can argue that there's a real benefit to working with some of the highest quality manufacturers in the world to kind of take over the rest of the journey. That fits well, we think, for a few reasons. One is it hits their core competency. From a shareholder perspective, you avoid pretty heavy investments into large-scale factories. And those large-scale factories tend to -- you kind of invest in them a year or 2 before they start production.

The first year is not usually a banner year in terms of the economics either. So just being able to focus on very high gross margin licensing in the longer term. And then as I mentioned before, we've been collecting customer billings as they're paying us cash to do development and sampling and demos custom to them, which is near-term validation for customers and for investors and a meaningful source of cash flow for us.

I think I'm familiar with the semiconductor industry, and we think of companies that used to have their own fabs and they outsource a lot of IP. How do you think about protecting your returns in IP while staying capital light?

It's good. The semiconductor example is a good one where done well, you can have people focus on their spots in the value chain, like NVIDIA in terms of design, TSMC in terms of manufacturing, ASML in terms of equipment. And they benefit from the volume that each does. They've learned to kind of protect the IP there. So that is a business model that we look to in terms of a success case where we're trying to occupy that design and licensing spot at the upfront.

So it's -- so how do you protect it? There's a few layers. So one is in terms of the development, we have over 300 patents and patent applications. And we put -- many of the innovations are not reverse engineerable. Those we protect as trade secrets. So that's kind of step 1. And then step 2 is to choose the right partners and to have the right incentives in place where everyone makes a great return in the success case, and they have incentive to protect the IP and to not more broadly reuse it.

And then the third layer of protection is just speed is to -- as you -- success is bringing out the QSE-5 and achieving kind of market penetration with it. As we alluded to in our 2026 goals, we're going to talk about what's beyond it. What's very exciting is while the performance of lithium-ion has -- the performance gains have been kind of flattening out with time. We see that the QSE-5, our first product is just the start of our S curve. There's an anode and the cathode and the separator and a battery. The anode we've eliminated is manufactured is gone.

Our separator is less than the thickness of a human hair, which of course, we can increase the size of that. We can make it even thinner and keep chipping away at the overhead of the cell. But a lot of the action in the future will go back to the cathode. So there's unique innovation, which only makes sense on that solid-state lithium metal platform, and that we see as the start of the new S curve.

That's great. You mentioned partners earlier. So let's move to partnerships. So I guess how should investors interpret the updated PowerCo agreement? What's changed? What's consistent? And what are the next observable milestones we should look out for?

We've been working with Volkswagen since 2011, 2012, so more than a decade. The objective is the same, is to take QuantumScape's solid-state lithium metal technology and to commercialize it in automotive specifically within the VW Group where they have many of the most iconic brands and diversity from motorcycles to trucks to more volume cars, more premium cars, et cetera. So that is constant. The structure of the license, as I mentioned, up to 85 gigawatt hours. 5 gigawatt hours, interestingly -- and strategically, the VW Group has the ability to sell outside of the automotive market.

So that's actually a fulfillment path outside of automotive for us. There's a $130 million prepay that we would earn with certain technical milestones being met, which is a kind of prepay on royalties. And there's up to $75 million -- there remains cash to be earned for this kind of custom development. So what's changed is we've updated the road map. I think the original agreement was 2 years ago, there was a licensing deal. Last year, we updated it. This year, we updated it again with the scope of work.

So you can think of this as a bit as a living document. We took out some things that were motorcycle related given the cancellation of the MotoE race series, which had nothing to do with us, but there was some -- there was a fair amount of work that was kind of tied to it. So some billings went, some cash use went. So it's net neutral cash to us and this new road map better aligns to our development. And so it's more -- a little more automotive focused and it features development, including the larger form factor cells that VW has asked for.

Yes. I think there's -- so I guess how should we interpret the 2029 target? And what milestones that we should be looking out for?

Yes. So key there are these technical milestones, bringing up Eagle line, producing higher volumes, maturing it certainly in that direction. And then that larger form factor cell development is also critical there. In the last earnings call, we had a photo showing our very high-volume Cobra process, producing larger area ceramic parts in significantly larger sizes than our kind of QSE-5, which is showing that the core technology and the important process by which we make the separator is consistent with those form factors.

Because I didn't mention that before, as important as the cell innovation is, is that process innovation on the ceramic side, also something perhaps underappreciated. When we focused on automotive makes you think about highly scalable things that have entitlement to very high quality, very high volumes and very low cost points. That pushed us to think outside the box in terms of our ceramic process. The most expensive and most critical quality step in the ceramics process is the heat treatment, kind of makes intuitive sense.

So we worked with a vendor to take one of their continuous tools and to speed it up by in order of magnitude called that Raptor. And the development team said, "Okay, I understand the knob that I'm turning to get there on speed. What if we cranked it even more." So that led to the Cobra process. We worked with a vendor to do a pretty innovative tool design, and we think that led to yet another order of magnitude of improvement.

So relative to like continuous equipment that you can get in the ceramics industry, we think we're in order, if not 2 orders of magnitude faster than other ceramic improvement. And that is just as important of a body of IP as our cell development work.

I'll probably get to technology in a bit here in more detail. But I guess now you have the Honda partnership as well. So what's the importance of that? How does it differ in maturity from the PowerCo? And what are the next steps in that partnership?

So Honda, one of the top 10 global OEMs, a fantastic product portfolio. Any of these automotive customers, just the potential volumes within them is ginormous, like many tens of gigawatt hours is possible within them. So that was the result of hands-on testing comparison of us against other competitive approaches around the world and kind of went with a public announcement with Honda that we're doing a multiyear research and development agreement with them. That is -- I mentioned their development expertise. They also have nonautomotive offerings, which kind of gives us some other avenues for these other kind of verticals.

So we see it as a vote of a step forward with one of these 4 OEMs that there's enough confidence and excitement that now we're a named partner. It gives us -- each of these top 10 global OEMs is a massive opportunity themselves. So having kind of a second named one is important. And just kind of fresh validation from another name that we're kind of making forward progress and we're working on is very interesting.

Yes. How important is it to add any more auto customers? Or you feel pretty good about the 2 sort of...

It's a good question. There's a -- so we have 2 names, and there's 2 other top 10 who are not yet named. We have talked about we like geographic diversity. So our goal would be amongst -- we've said amongst the top 4, there's a North American, there's a European and there's an Asian manufacturer. And there's -- between the 4 of them, it's such a large fraction of the market that, that's probably -- not that we wouldn't add another kind of suite. We could, but that's a very nice addressable market. So we will continue to engage people, but that's a pretty healthy share of the entire automotive market, and it's multi-hundred billion dollar TAM.

Yes. I'm going to come back to technology and sort of market segmentation, but I just want to see if there's any questions from the audience before moving forward. Can you use a microphone, please?

Yes, can you hear me? Thanks for the question. Obviously, you said right now largely, your business is developing sampling and demos. Do you have any idea down the line what the cost difference would be for OEMs between solid-state lithium and lithium ion? So is that something that you see completely replacing lithium-ion? And then does that result in higher cost for customers in the long run?

Good question. So with maturity and scale, we see this as cost advantaged. What's key to make that math work is we have an intrinsic win on the elimination of the anode material. So that's not only the graphite silicon host material, it's the liquid [ ion conductor that's in it ]. That's from a materials point of view and then all of the steps to make it. And then it's that formation simplification. So that's kind of -- that's -- the chemistry gives you that.

And what's critical for us is as we substitute the separator, can you do that within the margin of the savings that you just created. The things we can point to that say we're on the path, still work to do is the bill of materials, we think is inherently low cost and the method of making with that Cobra process that it's a coating step and it's this very high speed that we see that being capable of very, very low kind of cost points.

So our intent is to be higher performance in all the dimensions that you care about, which our partners would be able to -- you'd show up in better products. The ecosystem could charge a premium for that performance, but then at the same time, actually get the cost point at parity and then lower. You've got nice big, big margins for investors that encourages ecosystem partners to play. We would, of course, stop -- we would start with areas where we're adding the most value. So think like luxury and performance type segments. And as you hit kind of greater volumes and can come down the learning curve, it opens up broader and broader.

I got a quick follow-up. You talked a minute ago about kind of turning that knob, and I'm not sure I completely understand the science but...

For speed on the separator.

Right. Is there a point where continuing to turn that knob becomes -- there's not as cost of advantages down the line?

Yes. There are other vectors, though, that can result in speed that we haven't turned. So you're right, you get kind of diminishing returns on -- as you kind of -- every time you double, it gets harder and harder, but there's a lot of runway on a few different knobs. And that's actually one of the focuses of the Corning and Murata partnerships. When we were -- one of the reasons that they were excited to partner with us, it's a brand-new market for them.

And then they saw the innovation on the Raptor and Cobra side, and we got feedback that we didn't think this was possible and kind of -- they got very excited and it's already been a very fruitful partnership. We're like, well, geez, when you do the next design, could we try this and this. So that's been -- there's dozens of engineers between our team and their teams like very actively working on that. I think there's a lot of runway there.

So I guess in addition to potential cost benefits that you described and less -- I guess, less complexity. But maybe coming back to technology. So where is the differentiation of your ceramic separator and anode-free, whether it be in terms of energy density, safety, you kind of mentioned manufacturability, cycle life or other factors.

It's -- I love this question. So the separator is a means -- it gives a safety benefit, but the separator, the objective of it is purely to enable that lithium metal anode. So in a conventional battery, you have a cathode and you have an anode. And when you charge the cell, lithium goes into the cathode and then we charge it goes back -- when you -- sorry, when you charge it goes into the anode, you discharge it goes back down to the cathode. And it's just back and forth is how that works. As manufactured, we have nothing in the anode. We don't have the graphite, we don't have the silicon, don't have the liquid. So when you eliminate that as manufactured, that's weight and that's volume. So that's one of the key benefits.

Second thing, power. Why do we charge faster? Two reasons. If you're lithium-ion going from one side of the device to the other, we just cut the distance in half. And if any of you -- all devices in lithium-ion in the world are designed to avoid -- they're limited in their charge rate by the speed with which lithium can go to the other side of the battery and then you throttle it back for the diffusion into the anode. We don't have an anode to diffuse into. So we have this like wonderful charge profile all the way up to like 80% state of charge in which we slow it down so you don't damage the cathode. So there's a fundamental charge advantage.

Safety. The anode we eliminate is full of organic material, the graphite, the liquid electrolyte flammable, separator we replace. Another is a porous organic material. So just the elimination of organic material from the separator and from the anode, I think, is a big safety improvement. You see that in the last shareholder letter -- our shareholder letter and the safety improvement you see in terms of nail penetration and over discharge and things like the very, very high levels of heat, you can take our cells to a few hundred degrees Celsius and you damage them, but you don't see a safety event.

Life, one of the 2 major sources of life loss occurs in the anode, which I mentioned we eliminate. And then cost, that was kind of the answer that we had before. So it's very elegant and you get these advantages by eliminating one of the materials as manufactured. The other thing I would just highlight is that the material that we eliminate graphite found in all lithium-ion cells, even if it's kind of a silicon cell, it still has a blend of graphite usually more than 50%, that material is 90%, 95% dominated by China. So just in terms of a simplification of supply chain or from a national security point of view, that elimination is, I think, very important.

Yes. It's kind of part of an earlier part in terms of scaling, but customers are obviously interested in larger form factors.

That's right.

What's left to be proven to scale the large format cells?

Good question. So there's -- we showed on the last earnings call that the separator itself can do it. What you should look to us in the future is to start -- would be to show cell data. We're actually seeing the build-outs of the larger cells on that. So there's some continued work on the separator. That was a nice step, but then you'll see us increasingly start to show component and then ultimately cell level data there.

So I want to come back to market segmentation. You talked about now being organized into 3 verticals: QSEV, data center D.C., and then I think A.S. Advanced Solutions or something like that. So I guess how do you allocate engineering and commercialization resources between EV and these other higher-performance markets?

Great question. When we started the year, and we hadn't yet named the verticals, the goal was to advance into adjacent high-value markets, adjacent because it's something for which the QSE-5, which we developed for automotive is a very interesting product to kind of sample to get traction. That's true in both the data center and advanced solutions vertical. We're literally sampling QSE-5 cells made from our pilot line into these new spaces.

Because we're utilizing the same tech platform and as of today, literally no modification to the cell, the incremental investment that's in our annual plan that's implicit in the guidance we've given the Street is really in sales, product development and engineering. So it's more of an incremental investment that kind of utilizes the technology platform we spent so much time and capital to develop.

And the timing of us kind of stepping up some of the traction outside of the VW Group and announcing the other verticals is not a coincidence of that was with the start of our highly automated Eagle. That gives us the sampling volume to go after these other partners within automotive and beyond automotive.

I guess within data center, I guess, what type of companies are you partnering with in the value chain? What does the product look like? And I guess, how does the 800-volt transition sort of impact, I guess, even the interest in your product?

So great question. So the 800-volt is a system architecture that automotive has been focused on for some time. And with the data center move there is a nice kind of market opportunity for us to target entry. So the application we're targeting is specifically battery backup and power supply that's in rack or rack adjacent. As the generations of cabinets evolve, the compute and the power supplies are able to make these very nice significant gains, the battery supply systems are not. They're not -- the lithium-ion is not having gains at a sufficiently high rate of pace to keep up. So they're having to give higher and higher amounts of volumes to batteries.

And if you really want high performance and a great return on your GPUs, you want to give it exactly the power profile that it wants, which can be -- can change back and forth in tiny, tiny fractions of a second. Because of how quickly it changes back and forth, the supply of power has to be local. If it's given from a central source that's too far away, you can't react quickly enough. In fact, you can do the opposite of what the system wants.

So the architectures are going for localized storage really adjacent to those GPUs. So intuitively, what do you want? You want wonderful volumetric energy density because of the opportunity cost of the real estate there. You want great power, we talked about how that was an advantage of ours and safety. Billions of dollars of capital equipment sitting there. So there's a pretty high premium on safety. That combination is structural to the chemistry, and we think a really nice fit, especially with this shift to an 800-volt architecture, which we've seen in automotive. We think it's a really interesting kind of market opportunity.

So we've been -- we're Silicon Valley-based. We have -- like half of the leadership is former semiconductors. These are kind of the circles that we know. So it's having conversations everywhere in terms of those setting the architectures of the future to understand where the industry is going, the kind of hyperscalers themselves as well as having conversations with the ODMs in terms of who you'd actually work with to get into those power supply battery backup units that we're targeting.

Yes. As we wrap up, I guess, what should investors be looking out for the next 12 to 18 months? And again, maybe if there's anything the market is missing just as we wrap up here?

Yes. I would point to 3 things. So one, that Eagle line is important to all paths of commercialization to look out for those metrics that we've talked about, doubling output over the rest of the year, continue to make progress on those efficiency metrics and fleshing out the rest of the supply chain, be it with Corning and Murata and with announcements elsewhere. It's all about commercial forward progress. That's within automotive, if it's with Volkswagen and Honda and the other 2 top 10 OEMs and then look for announcements and progress in those other 2 new spaces, data centers and advanced solutions. And then finally, we did say one of our goals is to go beyond the QSE-5. So we'll put that next point on the -- our S curve.

Great. Well, Kevin, for sure out of time. We really appreciate your sharing your insights. Thank you.

Thank you everybody.

Thank you for standing by. Welcome to QuantumScape's Second Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, today's program is being recorded.

And now I'd like to introduce your host for today's program, Sam Kamara, QuantumScape's Senior Director, Investor Relations. You may begin, sir.

Thank you, operator. Good afternoon, and thank you to everyone for joining QuantumScape's second quarter 2026 earnings call. To supplement today's discussion, please go to our investor relations website at ir.quantumscape.com to view our shareholder letter. Before we begin, I want to call your attention to the Safe Harbor provision for forward-looking statements that is posted on our website as part of our quarterly update. Forward-looking statements generally relate to future events, future technology progress, or future financial or operating performance. Our expectations and beliefs regarding these matters may not materialize. Actual results and financial periods are subject to risks and uncertainties that could cause actual results to differ materially from those projected.

There are risk factors that may cause actual results to differ materially from the content of our forward-looking statements for the reasons that we cite in our shareholder letter, Form 10-K, and other SEC filings, including uncertainties posed by the difficulty in predicting future outcomes. Joining us today will be QuantumScape's CEO, Dr. Siva Sivaram, and our CFO, Kevin Hettrich.

With that, I'd like to turn the call over to Siva.

Thank you, Sam. I'd like to start by discussing our automotive commercialization progress. This quarter, we announced a partnership with Honda. This is a multi-year agreement aimed at advancing our solid-state lithium metal battery technology for automotive and other applications in the Honda product portfolio. Honda is renowned for their engineering excellence and product quality and has made significant investments in scaling up solid-state battery manufacturing capabilities. This partnership results from one of the most rigorous assessments of our technology to date. Our ceramic separator and anode-free lithium metal architecture enables QS to provide solutions to unlock the full potential of solid-state batteries. With Honda's diverse product portfolio, this collaboration allows us an additional pathway to expand into new high-value markets.

We recently updated our ongoing collaboration and licensing arrangement with Volkswagen PowerCo with a set of milestones and payments focused on automotive cell development, larger format cells, and our future technology roadmap. We are also working with 2 other top 10 automotive OEM customers under existing joint development agreements. We continue to strengthen our relationships with automakers in North America, Europe, and Japan. On this front, we have shipped cells to an additional automotive OEM customer. We also see broad-based interest in our technology across a variety of applications beyond electric vehicles, including AI data centers and other advanced applications such as aerospace and defense. We believe that all these end markets can be served by our fundamental technology stack, but each customer can benefit from an individually tailored go-to-market approach.

In order to serve our diverse and growing customer base, we are establishing three business verticals: QSEV for electric vehicles, QSDC for AI data centers, and QSAS for advanced solutions for applications including aerospace and defense. QSEV is working with auto OEMs around the world, including Volkswagen and Honda. QSDC is engaged with ODMs to design solutions based on QSE-5 technology for the fast-moving AI data center market. QSAS has shipped QSE-5 cells to a major American defense prime and is engaged with global players across the aerospace and defense industries. Next, an update on the Eagle Line, our highly automated pilot cell production line in San Jose, California. The Eagle Line serves several purposes.

Greater cell volumes allow us to meet customer demand for samples, higher throughput accelerates the process development cycle, and automated equipment serves as a proving ground for scaling up production. Demonstrating scalable production of a unique technology on a first-of-a-kind automated line is a significant challenge, and as such, it is one of our 4 key annual goals. Applying our systematic, methodical, and iterative approach, we have made significant operational progress with the Eagle Line. Core tools are showing uptime greater than 90%. Key metrics of productivity are hitting our targets, and we are currently ramping sample volumes and shipping cells to customers. As we continue to improve process stability and control, we aim to further double cell output in the second half of 2026 and anticipate customer sample shipments accelerating across all three verticals.

We are orchestrating a ne2rk of partners within the QS technology ecosystem with the aim of scaling up cell production. As part of this effort, we are working closely with established battery equipment vendors to lay the groundwork for future factories. We also continue to collaborate with our ecosystem partners at Murata Manufacturing and Corning, working towards high volume ceramic separator production using our Cobra process. Next, 2 updates on our technology. First, we have received consistent customer feedback that in addition to the combination of energy density and power capability, the safety profile of our technology is highly valuable. Competing next-generation approaches such as silicon or lithium metal anodes with liquid electrolytes, can pose serious safety hazards. In contrast, our proprietary ceramic separator is non-flammable and non-combustible, which enables an improved safety profile relative to lithium-ion cells.

Thanks to the increased cell output from the Eagle Line, we are able to conduct larger scale safety testing across a broad range of commercially relevant tests, including nail penetration, external short circuit, and thermal stability testing up to 300 degrees Celsius, whereas conventional lithium-ion testing stops at 200 degrees. We are pleased to report that larger scale testing continues to show that QSE-5 is a significantly safer cell design compared to both conventional and next generation lithium-ion cells. We have also seen customer interest for our technology in cell form factors that are larger than the QSE-5. One benefit of larger format cells is improved packing efficiency, which can result in higher cell level energy density.

In response to this customer interest, we have demonstrated that our Cobra process can produce larger area separators for higher capacity cell designs, which shows the flexibility and scalability of our ceramic separated technology to meet customer requirements. Lastly, I want to take a step back and look at the big picture. QS was founded with the mission to revolutionize energy storage. Today, it's becoming clear just how consequential that mission is. Transportation, AI, and defense are simultaneously undergoing fundamental transformations. Electric vehicles are reshaping the global automotive market. Drones and unmanned systems are rewriting the rules of defense strategy. AI is unlocking new capabilities for every business and person on the planet. These extraordinary developments all have one thing in common. They all need better batteries. We are positioning our organization to take advantage of these technology transformations.

QSDC is working to capitalize on exciting high value opportunities in the AI data center market, QSAS is engaging in customers in high value aerospace and defense applications. With QSEV, we are advancing automotive commercialization with our 4 top 10 OEM customers, including the newly announced Honda partnership. The Eagle Line is ramping up to enable increased customer shipments in the second half of the year. We are investing in future technology roadmap with larger format cells and more in the pipeline. There is much work still to do, but our team has the talent and tenacity to overcome challenges as we industrialize our technology to make the most of these transformational opportunities. Thank you for your support. We look forward to sharing more updates in the months ahead.

With that, I'll turn things over to Kevin for a word on our financial outlook.

Thank you, Siva. GAAP operating expenses and GAAP net loss in Q2 were $106.1 million and $98.2 million respectively. Adjusted EBITDA loss was $64.2 million in Q2, in line with expectations. For full year 2026, we reiterate our Adjusted EBITDA loss guidance of between $250 million and $275 million. A table reconciling GAAP net loss and Adjusted EBITDA is available in the financial statement at the end of our shareholder letter. Capital expenditures in the second quarter were $4.6 million. Q2 CapEx was primarily composed of investment into our technology roadmap and associated facility spend. For full year 2026, we lower our guidance for CapEx to be between $27 million and $37 million, reflecting capital discipline and cost savings on specific capital projects. We set a public goal for customer billings in 2026 to exceed customer billings in 2025. As of today, we have achieved this goal.

Customer billings in Q2 were $10.8 million. Total customer billings through Q2 '26 are $21.8 million, exceeding fiscal year 2025 customer billings of $19.5 million. Customer billings as a metric represents the total value of all invoices issued by QuantumScape to our customers and partners in the period, regardless of accounting treatment. As a reminder, customer billings may vary from quarter to quarter due to fluctuations in activity as we progress through various phases of engagement. This operational metric is not a substitute for revenue under US GAAP. We ended Q2 with $859 million in liquidity and will remain prudent with our strong balance sheet going forward. As always, we encourage investors to read more on our financial information, business outlook, and risk factors in our quarterly and annual SEC filings on our investor relations website.

Thanks, Kevin. We will begin today's Q&A portion with a few questions we have received from investors or that I believe will interest investors.

Siva, we are now halfway through 2026. What proof points should investors evaluate to know if QuantumScape is tracking to our annual goals?

Sam, goal number one is to demonstrate scalable production with the Eagle Line. Taking a unique technology on a highly automated process from the ceramic separator to the unit cell to the fully assembled QSE-5 that meets customer requirements is a significant challenge. We are making strong operational progress and remain on track. Goal number 2 is to advance automotive commercialization with QSEV. We are working with 4 of the top 10 global automakers, including our new deal with Honda. Adding another paying customer is a big step forward in our commercialization efforts. We also updated the PowerCo collaboration and licensing arrangement with milestones for automotive cell development, and we shipped cells to an additional automotive OEM in this past quarter. Goal three is to enter into new high-value markets. We are very excited about the progress we are making in these new business verticals.

We have appointed talented leaders to run QSDC and QSAS. QSDC is engaging with OEMs and data center architects to provide solutions for this fast-moving market. QSAS has shipped QSE-5 cells to a major American defense prime, and we are engaged with global customers in aerospace, defense, and other advanced applications. Goal 4 is to go beyond QSE-5 with our future technology roadmap. This quarter, we showed larger format separators from Cobra, which enables higher energy density cells. We have also shown new safety data this quarter with thermal stability, external short-circuit, and nail penetration results that are particularly outstanding compared to competitors. We are committed to sharing more on our technology roadmap later this year.

We're making the progress Siva discussed toward our technical and commercial goals while remaining disciplined stewards of capital. We have reiterated Adjusted EBITDA guidance and total customer billings for 2026 are already higher than last year.

Siva, we are now organized into three business verticals. What is our approach to serving automotive and non-automotive markets?

We see broad-based demand for better batteries across the board, AI data centers, aerospace, consumer electronics, medical devices, defense, and many other applications. We believe they're all capable of being served by the QS technology platform. The benefits of energy density, power, safety, U.S. supply chain, and workforce all resonate with our customers. For the QSEV vertical, our automotive customers all have development pilot lines for batteries and high-volume manufacturing capabilities. For QSDC and QSAS customers, this may not be the case. They are fast-moving, the number of customers is larger, go-to-market has different channels, we may involve ODMs, and product integration looks different with more opportunities for value creation. These new verticals increase the size of the market, strengthen the fundamental technology platform, and benefit the QS ecosystem, which adds value to our customers across all verticals.

Siva, what should investors take away from the recent updates to the Volkswagen and PowerCo relationship, and how do they reflect the progress being made towards commercialization?

Sam, the relationship with PowerCo SE continues to be strong, and the 2 teams are working closely together on-site here in San Jose. The overall objectives of the collaborations are unchanged. Industrialize the QS technology and transfer the technology to Volkswagen PowerCo for automotive commercialization. Over the past 2 years, we have continued to update and revise the scope of work as we progress this relationship. The updated scope of work includes milestones related to larger form factor cells, as well as technology elements from QuantumScape's advanced product roadmap. We look forward to sharing more on that soon.

From a financial perspective, customer billings under the 2025 VW PowerCo collaboration agreement represent a cost share for QS expenses incurred under the agreed scope of work. Under the new scope of work, we've tied payments to deliverables aligned to our product roadmap. Additionally, we eliminated MotoE related milestones, given that the organizers put that race series on hiatus. As a result, even though the total possible payments under the agreement have reduced from approximately $131 million to approximately $75 million, we now project significantly reduced expenses for the project. We forecast a net neutral financial impact in terms of cash when compared to the 2025 scope of work. I'd refer investors to the 8-K on file for more information.

Okay. Thanks so much, Kevin. We're now ready to begin the live portion of today's call. Operator, please open up the line for questions.

[Operator Instructions] Our first question for today comes from the line of Gabriel Gonzales from UBS. Your question please.

Firstly, on the updated PowerCo agreement, the updated milestone framework appears to have shifted away from execution-oriented targets like battery cell delivery and validation over the next 2 years towards cell development and technology-related objectives. Can you just help us understand the reasoning behind that change? Should we view the absence of the earlier milestones as a change in expectations regarding their timing or achievability?

The Volkswagen PowerCo agreements, we update them every year. We have done that 3 years in a row. As the relationship progresses, we update it based on the milestones yet to come. We have done that consistently. The relationship is very strong. Our objectives remain the same. This reflects that we will be paid based on the milestones that we both have agreed that we need to achieve, which are aligned with our technology roadmap. For instance, the larger format cell, the future technology milestones that we need to get, et cetera. There is not anything philosophically different about the objectives of the joint program.

Got it. Okay, thank you for that color. Kevin, you mentioned a neutral impact cash flow, the lower expenses for the project offsetting the lower cash inflow. Is there any impact to the $130 million royalty prepayment from PowerCo? If not, what's the progress update there? Should we expect those funds to come in this year or next year?

Great question, Gabe. You're correct. The $130 million prepay is unchanged here and is released by technical milestones and alignment on the form factor. There, as we laid out in the letter, we've made nice progress as we've outlined with the Eagle Line and also with the demonstration of those larger separators coming off of our Cobra line.

Our next question comes from the line of Itai Michaeli from TD Cowen. Your question please.

This is Justin on for Itai. A super quick question. You guys highlighted, QSAS, the shipments of the QSE-5 cells in the quarter. I guess, can you help us understand maybe some of the nuance around that shipment? Was it just natural ramp cadence associated with the Eagle Line? Is there any kind of the deferral of milestones that might have freed up some incremental capacity that allowed those shipments? Just trying to get a better understanding, I guess, of maybe how that ramp is kind of progressing on yield, line times, cycle times, and any improvements or color you can provide, at least on that AI model update for the reliability improvements that may have contributed there as well.

Justin, great question. The answer is yes. The Eagle Line obviously is improving in productivity. As you would expect, taking a brand-new technology, a very unique technology, into a new highly automated line and getting the product out to meet customer demands is a difficult challenge, and we've been doing very good progress on the Eagle Line, through the last 3 months since we installed the line in February. The increased volume allows us to. There are three major benefits out of this. A, clearly it gives us more samples to ship to customers. B, the higher volume allows us to learn rapidly. Three, the Eagle Line itself serves as the basis for the technology transfer for the higher volume lines later on with our customers.

This naturally allowed us to be able to ship this out of the Eagle Line for a customer demand in the U.S. defense frame.

Super helpful. Maybe on QSDC while we're on the topic. How far away do you kind of envision the initial shipments of samples into that vertical? Obviously, there's been progress in the quarter. Just trying to get an understanding of maybe the timeline as to when samples start hitting them and how quickly the conversion rate might be relative to the QSAS side of the business now.

QSDC, as you all observe, is a very fast-moving business, and the demands are going up rapidly, and there are significant players involved. We are working closely with data center architects and ODMs that supply to these architects. We are working closely to develop designs that can be delivered to these ODMs to integrate. It also allows us to do higher value in our integration in the product. This is all coming together very rapidly. We have a new General Manager for the business. Shahar Noy is getting ramped up on this very rapidly.

Perfect. If I could sneak one final one in before jumping into queue, more mechanic-wise. On the Q2 billings of the $10.8, how much of that was PowerCo? I guess, just trying to square up maybe the $75 in context of, I believe it was $20 as of the end of Q1. Just trying to figure out the incremental to see how much is left, at least on that milestone update that you guys provided from a payment perspective.

Thank you for the question. They're certainly part of the mix. We don't, as practice, break out the billings into finer detail. I would mention that as part of our annual goals, we have a number of customer-facing ones. One is to advance automotive collaboration. You have the update to Volkswagen today. You have the Honda relationship. Further success there means advancing those relationships and adding more. Also, the letter goes into detail with making progress in other customer segments, including the AI data center and the advanced solution spaces. The goal is to advance those relationships as well, and you get a broader and broader portfolio of customer activity across that metric.

Yes. One other brief plug on the Eagle Line, we did put out a video today between our COO, Luca, and his VP of automation and hardware, talking about the importance of the line and what it meant to bring it up. Also in the quarter, to the extent there's interest in the Data Center piece, we do have that new GM talking about the Data Center piece, the segment that we're targeting, and some early details on go-to-market.

[Operator Instructions] Our next question comes from the line of Laisha Zaack from HSBC. Your question, please.

Hi, Siva. Hi, Kevin. Thank you so much for taking my question. I just wanted to touch a little bit on the new verticals. Do you have any plans to expand the business into other different verticals? I'm thinking about consumer and how the technology you're developing fits well into it. I'm just wondering if the new business verticals like Data Centers and Aerospace and Defense will be your main focus along with Automotive, or are you open to exploring other opportunities?

Laisha, good to hear from you. Thank you. Yes is the answer to that question. We have clearly separated out QSEV, and we have clearly separated out QSDC, which is the data center business. The advanced solutions business explores all of the other opportunities, including aerospace, defense, medical devices, and consumer electronics, and other interesting areas. We do see substantive opportunities for the QS technology platform in many of these, particularly the QSFC form factor. The existing product can be shipped into many of these products, so we are actively exploring these opportunities as well.

Okay. Just another follow-up. You have noted in the remarks that AI data centers are transitioning to 800 volt DC designs that are similar to EV architectures. Given that there's an urgent constraint or power constraint, actually, that the hyperscalers are facing today, could that mean that QSDC could potentially reach higher volume capitalization faster than QSEV because of this very intense or strong demand from the market, which does require some more complex vehicle integration? Does that make sense?

Laisha, I do understand the question. The fact that the data center market has a lot of need, especially from energy to power, high-quality power delivery is one of their biggest bottlenecks. We, with our high energy and power density, and particularly safety, is a great fit for this market, means that there is a lot of opportunity here. This is the reason we have stood up three verticals so that we can put the focus on each of these verticals without sacrificing our go-to-market focus on each of these. We will be giving data center with its 800 volt transition coming up, all the attention to make sure we capture that market as quickly as possible.

Laisha, if you recall, expanding into high-value markets is one of our 4 annual goals. Our annual operating plan includes investments into go-to-market and commercialization capability, notably in sales, product management, and engineering. That hiring is going well, and we did reiterate our Adjusted EBITDA guidance on this call.

Thank you so much, congrats on the progress.

Our next question comes from the line of John Saager from Evercore ISI. Your question, please.

Wanted to get some additional clarity on the PowerCo agreement. My understanding is that under the old agreement, you had up to $130 million that would be billed through Q2 of 2027. Under this new agreement, it's $75 million through Q2 of 2028. If we're to say roughly $41 million remaining through Q2 '28, is that correct? Or sorry, $34 million remaining through Q2 of '28, because you've billed around $40 million so far, I think.

Yes. You have the up to correct. We haven't cleanly broken out which portion of that from PowerCo is over time, but would just reiterate that you have the basics right, the up to changed, the forecast expenses also went down, and we see a neutral cash impact when related to the 2025 scope work. That's correct, John.

Then on the timing for PowerCo, I think the last understanding is that they had said start of production begin in 2029. Are you still on track there, and what are the next milestones that we'll hear about as it relates to this partnership so that we can track your progress towards that 2029 date?

John, all of our work goes through the Eagle Line. The Eagle Line progress is what determines how quickly we can transfer the technology to PowerCo to take it up there. We are seeing great progress here. Eagle Line got installed and released in February, from February to now, we have integrated all the pieces of the Eagle Line, now making sure their uptime is high, the productivity is good, now continuing to work on process stability and process control. These are the kind of things that allow us to increase the volume of output, which we plan to double in the second half of the year. That allows us the confidence to work with Volkswagen PowerCo to transfer.

Is 2029 still the target?

That is correct. We have not announced any change from our original plans.

Okay. On the 2 new business lines, if I could ask one more, what is the focus for those business lines this year? Are you more focused on driving customer demand and JDAs, or are you looking to build out the ecosystem, meaning that first step is you need to sign a battery manufacturing partner?

Yes. John, these 2 new businesses, as they are starting up, the big advantage is that they use the power of the QSE-5 platform. The QSE-5 platform, with its no-compromise performance across all aspects, is the foundation on which they are built. Our immediate next focus is on go-to-market. We are reinforcing the go-to-market personnel strategies to make sure we are able to service these customers as rapidly as possible. You are right, immediately afterwards, we should be focused on getting volumes out to them.

Okay. First step, customers. Second step, find a partner to do the actual manufacturing.

Yes. John, if you recall, in the summer 2025 amendment to the PowerCo collaboration agreement, we expanded capacity of that license up to 85 gigawatt hours, and that incremental 5 gigawatt hours was permitted by PowerCo SE to go outside of the automotive market. PowerCo is certainly one channel. In the fullness of time, we are engaged with multiple different customers in that QuantumScape Advanced Solutions channel. The Eagle Line is a very powerful capability to do customer sampling, but in the fullness of time, we absolutely will need to add capacity.

Our next question comes from the line of Mark Delaney from Goldman Sachs. Your question, please.

You've got Ayush Ghose on for Mark Delaney. Thank you for taking the questions. On billings, nice to see the progress there with 2026 billings already exceeding 2025. Can you discuss the outlook for overall customer billings in the second half of the year, maybe relative to the first half?

Thank you. We have made steady progress. Last quarter, we added ecosystem partners for the first time, and as you mentioned, we have exceeded the 2025 levels in 2026, now that we're at $28 million. In addition to PowerCo SE, as highlighted in this letter, we added Honda, an amazing top 10 OEM partner with strength in engineering, both within automotive and a broader set of product offerings at the end of a quite extensive diligence and selection process. We're making nice progress there. As I referred to earlier, you should expect customer billings to be a metric that has some variability into it. The things that we control would be to advance the relationships individually and to continue to add additional automotive partners, as well as to start to add partners from these new spaces and to increasingly turn it into a portfolio.

One more from me. On the non-automotive markets, QSDC and QSAS. Again, nice to see the progress there. Can you discuss some of the timelines you're seeing from customers and production volumes that prospective customers are requesting? How closely do these specifications align with your more traditional automotive roadmap? Thank you.

Ayush, great question. Going back to the prior question, just to finish the thought, Kevin was talking about Honda. Adding another paying customer that we can disclose is actually a big deal that helps us rounding out that portfolio. Back onto QSDC and QSAS. The automotive specifications are very well known. Each of the others have their own unique spec needs. For instance, safety is across the board very important to all of them. Especially in a data center right next to very high-value GPUs, safety is extremely critical. Power, especially in the case of data center, it is discharge power that is needed. In the case of the data center, again, low temperature operation is not important, but higher temperature operation is important.

In the case of military applications that we are looking at, not losing capacity while being able to discharge substantive power is an important characteristic. These are what we claim credit on the QSE-5 platform, that it is a no-compromise platform that is able to supply power without losing capacity, et cetera. You can see that these new businesses, new verticals, are complementary, and they play off of the basic capabilities of the platform.

[Operator Instructions] Our next question comes from the line of Winnie Dong from Deutsche Bank. Your question, please.

First one is on Honda. I was wondering if you can sort of describe the next steps to securing a deal like PowerCo for Honda, any sort of high-level timelines you have in mind internally.

Thank you, Winnie. As you know, Honda is renowned for their engineering expertise. They have spent a lot of money on solid-state battery development already. They have a large pilot facility. They came in and did an incredibly deep evaluation of the technology and saw the synergies, how their core investments can be leveraged with our architecture. The ceramic is common. The Japanese ecosystem that exists that we have spent so much time creating, they all go together with the ceramic, the separator, and the lithium metal anode-free architecture. They clearly see that this is the way for them to enhance their solid-state portfolio across all of their products. Immediate job is to move this joint development into the next level of development and move it along the same template that we have developed with PowerCo Volkswagen, so we can move very quickly across their product portfolio.

Got it. Thank you so much. On the QSDC and QSAS, was wondering if you can perhaps talk about some specific milestones that you guys have in mind for those 2 business lines. For instance, would it be like shipping cells to the data center customers or some form of partnership or any sort of announcement that we expect to see this year, or perhaps into next year? Thanks.

Winnie, yes, you will see announcements from us on both of these, and that will give you a timeline. On a general sense, I can use QSDC as an example. The 800-volt transition is in front of us. The megawatt rack also is just ahead of us. These all are going to be deployed in data centers towards the end of 2028, which means we need to be ahead of that with respect to developing an integrated product and delivering it to them. You can see natural deadlines developing when these transitions are happening in the marketplace.

Thank you. This does conclude the question and answer session of today's program. I'd like to hand the program back to Siva for any further remarks.

Thank you, operator. I'd like to recognize the entire QS team for their execution and to thank our shareholders for their continued support. We look forward to updating you on our progress in the months ahead. Thank you.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.

So hi, everyone. I'm Winnie Dong, covering autos and autotech here at Deutsche Bank. And today, we're hosting a virtual session with QuantumScape. From the management team, we have Kevin Hettrich, CFO. So Kevin, thanks so much for taking the time today.

Thank you for having me.

Yes. So you guys have obviously been at the forefront of solid-state battery conversation. And with recent milestones and manufacturing process as well as OEM partnerships, there's a lot to cover. So let's dive right in.

From the standpoint of launching a commercial product and debuting it with PowerCo as your first customer last year, so you've done that. And now maybe you can give us sort of a refresh look on the scaling process and how that's tracking via your expectations in conjunction with the Eagle Line progress, et cetera.

Perfect. So you hit it right there. The Eagle Line, that's one of our 4 goals that we set out to do in 2026 and arguably the most important because so many things flow through it. It does 3 things. It provides cells to partners within automotive and outside of automotive with parts for evaluation, for demos and for qualification. The second thing it does is it's our platform upon which we mature our production technology, working on things like yield and reliability and all the process metrics that you track in advance of broader scaling. And the third thing is that, for example, with Volkswagen with the joint scale-up team, it's the platform from which we would teach and to do a technology transfer for our partners to go and advance the scale beyond the pilot line capacity here in San Jose.

I'd say that we're making nice progress at the end of the year -- at the end of 2025, we had a goal, which we achieved, which was to land all the major equipment and to get it installed. And then here in February of this year, we had a successful inauguration. We kind of pushed the green button on the line. And as we mentioned on the April earnings call that this is the quarter where that ramp-up started. We're tracking things like yield, reliability, process metrics like equipment uptime, the percentage of cells produced from films. Started, everything you would imagine there. We have a set of stage gated kind of milestones that we're doing alongside our scale-up partners like VW PowerCo, and I think that's progressing well. And more to come on that for investors in the future.

Okay. And then maybe can you help us kind of understand at the moment versus maybe beginning of the year because we're like half year -- halfway through the year, where you might be now in terms of output versus where you were sort of like in that February time frame. And then from a perspective of like whether it's customer engagement, current ones or prospective ones, how that is helping.

That's a great question. So with the Eagle Line coming on, it's our best known process, highly automated. It's a pretty significant expansion of our capability here at QuantumScape.

For a customer, they really want to see 2 things. Does the product work? And second, do they have state that you can kind of scale it up afterwards? The pilot line, we think, is the sweet spot to do those 2 things while also remaining capital efficient because as you recall, under a technology -- under a collaboration and licensing agreement, we would take it to the point of product maturity and then work with our partners for subsequent scale-up. So I think that is playing out well. And some -- I think the recent OEM announcement beyond Volkswagen is a nice evidence of that of folks in the customer and the partner ecosystem seeing value and getting excited about what the future holds.

Yes. So I guess let's talk about the announcement that you had since you mentioned it with Honda, which was actually very recent. On a high level, what can you tell us about the agreement? And how is it -- I guess, how is it different from the VW agreement? And if you can walk us through the announcement of the -- steps to leading up to the announcement.

A pair of great question. So with Honda, it's a multiyear joint research agreement. The deliverables and the objectives are tailored by Honda. And it's in that joint research, joint development step where you have a partner kind of saying, here are the things I would like to see you do as confidence building steps we believe that set up the next stage, which would be a broader scale collaboration and licensing deal like we have with Volkswagen. So that's what it is and how it's different.

As you can see on the page, we now have 2 named top 10 global OEMs in Volkswagen and in VW PowerCo. Three, including Honda, are at that joint research and joint development stage, and then Volkswagen is a stage more mature in that collaboration and licensing phase. The evaluation was a multi -- quite a lengthy one. It had hands-on testing, competitive benchmarking. Honda is a top 10 global OEM. You should assume that they see just about everything. So when they noted compelling and unique advantages to quote our press release, we took that as a very strong sign of validation of what we're working on here at QuantumScape with our solid-state lithium metal platform.

Got you. And then so I guess, what are the path forward with what are some of the things that you guys will be working on in the next 6 months or the remainder of this year?

So more of that to come, and the answer is in that scope of work. And the intent is to do that successfully and to build confidence both in the solid-state platform and in the manufacturing approach. And if that's successful, you'd see us progress to the subsequent stage of that collaboration and licensing agreement.

Yes. I assume that given you already have sort of like this established ground with Volkswagen that the process with Honda would be faster. And so like how far away from like a potential licensing contract with it?

Yes. Stay tuned on that. Nothing I can share on the webinar today. But you're right in that we do have a nice platform in the QSE-5 and the Eagle Line and that, that is kind of a higher foundation upon which this agreement stands.

Okay. On the slide, you also obviously have other partners in the ecosystem. So we have Murata, we have Corning being brought on as your strategic partners. What else are you looking for? And what might your customers be looking for in that ecosystem?

Yes, that's a great question. Taking a step back, as we mentioned before, QuantumScape is a technology licensing company. So our desire is to have compelling energy storage technology and then to work with our partners to commercialize it in automotive and in other sectors where folks find real value. The -- and remind me your question again, Winnie, it was to link the dots to the partners in the ecosystem.

Yes. So what other type of partners might you be looking for to bring on into the ecosystem?

Yes. So as part of that, there are 3 main kind of cash inflows from the world to QuantumScape. Two would come from customers, which is the collaboration and the long-term licensing, collaboration being immediate cash flows, licensing being longer term, larger opportunity. And the third actually can come from the ecosystem.

So from the point of view of a -- from a customer or a cell manufacturer who's licensing the technology, they, of course, are looking at the benefits of the solid-state lithium metal platform. And by working with kind of partners, our goal is to give them a turnkey solution to do things like source the separator, et cetera, and let them focus on what they do the best.

From the point of view of the ecosystem, if you think of like a Murata and a Corning, we'd be giving them new market opportunities utilizing our technology. They wouldn't have had to put in R&D. And as we make success expanding the customer base with technology that expands the customer base for them. And from the point of view of QuantumScape, you -- it's capital light because the partners are putting in the CapEx beyond the pilot line. And additionally, there are sources of inflows from each of those parts of the value chain to reward kind of QuantumScape for the historical IP that we've put in.

You asked the question, Murata and Corning are, of course, wonderful foundation for that ecosystem, making our unique component, the ceramic solid-state separator. Arguably, those 2 are the top 2 ceramic players in the world. So we couldn't imagine better partners to continue down the learning curve and to scale up kind of quality parts beyond our pilot line.

But then in the fullness time, as you were mentioning, we do seek to add other named partners to the ecosystem. We have an awful lot of IP, including in process technology, in materials and equipment. And under a success case, you should see us start to put up names in those other areas as well, both in equipment and in materials.

Very helpful. So understand that separators is a key input in your technology, which is the reason why you're working with the partners that you're working with now. I guess what can you say today about the supply chain and cost of materials? I know historically, this isn't something that you widely publicized, but given where you're now and your progress with your customers, is this something that you can elaborate a little bit more on or...

Yes. I can talk about it from a few different angles. So first of all, in automotive context and other context, the ultimate price upon which this is sold, combined with the value that you create with the performance attributes is absolutely important.

The separator from the from the point of view of one of our licensees, our solid-state separator is unique. What's eliminated from the cell is relative to a conventional lithium-ion cell is that porous polyolefin separator as well as all of the anode, both the graphite silicon and any liquid electrolyte contained in that anode material. So we -- and then we need the -- sorry, the -- you're asking for a little more on the cost of goods sold. So -- or just separate costs. So knowing that a gigawatt scale, we want to be a compelling value proposition, both the benefits we bring as well as the cost of goods sold and how it's made. There's a couple of important things to get right.

One is that the choice of materials, it's not an accident that those are earth abundant materials that are thought of as commodities found in multiple geographies from multiple different suppliers. That's kind of part 1. And part 2, it's a ceramic material, meaning -- or maybe what's important about that is that the most important step that's critical to both manufacturing cost and quality is that heat treatment step, which is where we've focused innovation over the years. We're the current production technology we've called Raptor, which is approximately a 200x improvement in heat treatment speed relative to the continuous tool that we had in place here.

Before we did it, it was thought to be impossible to make this material continuous anyway. This is just innovation on innovation. Why that's important is that speed hits -- we believe both improves quality and also the key metrics in terms of manufacturing, including the depreciation cost kind of per part as well as any of the inputs into that tool, be the consumable or electricity, et cetera. So those 2 together are important. What's left? We need to continue to mature that here at QuantumScape, our Eagle Line and the Cobra component in that. We're working on that as we speak to mature the process technology, as we mentioned.

And then the final component of that is beyond our pilot line is to select the right partners and to empower them. And that's where kind of Murata and Corning kind of come in. We'd like investors maybe to take with 2 things. One is their interest in collaborating here, we see as a vote of confidence in what this technology can be at scale and also as a means to get there. We couldn't think of 2 better partners in this example to help mature that -- the volumes, the quality, the cost of goods sold.

Yes. No, that's very interesting. I'm going to shift gear a little bit here because it seems like in my coverage, non-autos is like a tea phrase these days. And you do have some of these partnerships and agreements in other sectors with consumer electronics and stationary storage as well. Can you maybe remind us what you're doing right now in those areas?

Yes. Great question. What we're working on enabled by the ceramic separator and the anode-free solid-state platform leads to benefits that are exciting to automotive and other applications, the cells relative to conventional lithium-ion, smaller, lighter, faster charging, safer, longer live and at scale and process maturity, we also think lower cost.

So it's a -- the package of benefits, we think, is quite compelling and exciting. So you've seen traction in the automotive space, first with Volkswagen PowerCo, whom we have by far the most mature agreement, just recently having announced our second OEM publicly upon it, which we discussed earlier, the other 2 OEMs. By the way, this progress with others and us talking about non-automotive applications being correlated with the start-up of the Eagle Line is not an accident. It's actually that further volume with which we can engage kind of beyond automotive has enabled us to really respond and engage more so.

In the last 2 earnings calls, we've -- there are lots of potential fits with that type of cell that arguably is -- we're targeting simultaneous improvements on all the dimensions that customers care about. And not surprising, there's a lot of potential fits. We've looked around for some of the highest value, most adjacent to automotive. And the 2 we've been talking the most about are AI data centers and aerospace and defense. Specifically on the AI data centers, it's the emerging energy storage application that is in the rack or rack adjacent that provides 2 benefits. One is battery backup for something like 2 to 5 minutes as well as improvement in the supply of power, like exactly -- the goal is to give the GPUs exactly what they need when they want it so that you can utilize the full performance of those racks. So that's the application that's an emerging architecture that's forecast to have pretty healthy growth as you move through some of these next iterations of rack design.

What's -- what we believe is so compelling about our technology platform is the combination of volumetric energy density because of the very, very, very high opportunity cost of using space combined with safety for obvious reasons.

And the second area with aerospace and defense, you value many of the same things as you do with automotive that kind of balanced, we want basically everything to be better. And with anything that flies in kind of aerospace and then as you -- especially as you start to get into the space part of aerospace, the premium on weight, weight especially and with any human type light and safety again, really resonates.

And so if we just take a step back now and think about this within the context of your Eagle Line, is it something that sort of will require any form of alteration within the lines or potentially a different product? Or what would be like sort of the work that you need to do to go after those opportunities?

So those -- more to come on that as we come along. But I did -- one of the key selection criteria for those opportunities is adjacency to the automotive market. To the extent that they can leverage, the idea is exactly, but with minimal modification to the QSE-5 is absolutely a selling point for a few reasons. Like one, we want to get to market as quickly as possible and to engage customers in these spaces. And that if there's -- we want to minimize development work, quickly get the product in these folks' hands and to engage in their customer-specific qualification cycles.

Got you. If I recall, within your agreement with PowerCo, there's about like 5 gigawatt hours of capacity that's reserved for applications outside of autos.

That's correct. In the PowerCo agreement, it's -- the licensing portion can be up to 85 gigawatt hours in the ZIP code of about 1 million EVs per year. And you did your homework correctly. The most recent 5 gigawatt hour addition can be used in any application area, including outside the Volkswagen Group.

Yes. And so I guess for you guys, would the profile of the margins be the same or different in terms of applications within autos and outside of autos?

One of the elegant things -- so maybe 2 comments. One is automotive is and will be an important focus to the company. It's by far the largest market. Even within automotive, there's a diversity of vehicle types and then customer preferences and opportunities to command what we think are nice margins. The other benefit of automotive is that commercialization there gets you scale which can then be applied to other industries in terms of more mature processes and helping drive down the cost even in application areas that are maybe a little smaller.

So you were asking me about the margin potential. So because we have the ability to kind of choose amongst all of these different areas where areas where we think there's some of the most exciting kind of fit with that platform, we've naturally the opportunity for very kind of compelling value creation and therefore, the ability to price to kind of reflect that value is certainly a criteria. And then within an area that may have that as a high median, when you're bringing out a technology, you want to try to find the folks within that, that have the thing that even within that area best embodies it so that when you're coming out of gate with your kind of first volumes and you're kind of ramping up scale, you're kind of moving backwards from kind of in that willingness to pay and the size of market opportunity correspondingly.

So in short, yes, we think there's some quite nice margin opportunities. And in many areas, we think they're north of what you could find in automotive.

I guess relatedly, there have been talks about sort of this next-gen product with larger capacity and perhaps some optimization around packaging and potentially even like cathode chemistry innovations. Anything you can tell us about this ahead of...

Yes. We've been doing some breadcrumbing, and I think you caught 2 of 3 that you just mentioned in that question. So on the cathode side, on the form factor and then on the size kind of 3 dimensions that we've kind of alluded to. So please stay tuned there.

Our goal as an innovation technology is to refresh the platform on a certain cadence and to work with leading customers to find product opportunities within automotive and in these other kind of broadening application areas to help commercialize it, work with our ecosystem partners to give them turnkey solutions and then rinse and repeat.

The other point to make is relative to lithium-ion whose rate of improvement arguably has been kind of slowing is that this is the start of our S-curve, where the QSE-5 is kind of the first data point on the product road map, and we see kind of compelling evolutionary opportunities to continue to improve it from here. Along -- and then stay tuned. That's one of our 4 annual goals. I might as well list them because we -- I've mentioned that a few times, but the Eagle Line to demonstrate scalability is one, to continue to advance automotive commercialization is the second. The third is to expand into high-volume markets. And the fourth, just as you mentioned, is to go beyond the QSE-5.

Do you think it's like a coincident that you've announced kind of this next step with Honda and you're also sort of looking at these next-gen products? Or are they sort of generally separate paths? And in general, the company is sort of looking at next-gen products on a constant basis?

And then specifically with Honda, you're referring to the part that they are world leaders in vehicles, but they do more than just vehicles. Is that the angle that you're asking the...

Yes, yes.

So that certainly that makes Honda a more exciting and interesting kind of customer for us, feather in their cap with our desire to work with them is that they're both leaders in vehicles. They do motorcycles, and they also have a breadth of other offerings as well, including consumer products and then even some emerging eVTOL type applications. So there's a whole product portfolio within Honda.

Yes. All of that is -- sounds very exciting. How...

We're firing up here in [ HQ ] California.

How is that going to affect your R&D spend, if anything at all?

Good question. Great question. So the goal is to develop a technology that's broadly useful across application areas where the stack, it's the anode-free architecture, it's the separator. We work with more conventional kind of cathode materials for the QSE-5 is that there's far, far, far more in common than there is different across these application areas that we've mentioned. So there is incremental spend or certainly, there can be for any residual change to the product. There will be -- which will bring in some incremental engineering. You have sales and business development type activities. And of course, you're then dedicating part of your pilot line resources to those folks.

But those are all, I think, more of an incremental category relative to the much larger cost to actually develop the platform itself. So we think there's kind of excellent operating leverage of sorts once the technology is developed to go find and to commercialize with as many excited partners as you can, both within automotive and outside of it.

I did make the comment on one of the recent earnings calls that with the Eagle Line in place and inaugurated and in the ramp phase, as we mentioned on the April earnings call, the bulk of the CapEx from here on out is kind of beyond QSE-5. So that's -- our spending and our equipment is kind of focused on what's next.

That's very helpful. Maybe taking it even further step back, you've moved to the CapEx-light model for some time now. And first, I guess, do you want to maybe just remind us in terms of the leverage of the licensing model, why you switch to that, yes?

Yes. I'd say I'm putting my CFO hat, spending less money to enter a market. So a number of advantages. So first, if we -- our goal is to develop compelling technology, take it to a pilot line scale, kind of win the hearts and minds of customers and then on the product and then develop kind of a turnkey solution for the rest of the supply chain and then support them for the rest of the scale up. There's a number of benefits is that we get cash in that collaboration phase where our customers pay us to do that development that's specific to them, immediate validation, immediate cash to us.

Second benefit is that with the partners doing scale up, it takes relative to like automotive scale factories, billions of dollars off our balance sheet and often which is spent years in advance of the factories producing product, especially producing gross margin positive type products. So it just changes the fundraising needs and reduces what would otherwise be likely dilutive capital at that point. It kind of -- we like to think of it as a best of both worlds where we get to combine our innovation and technology development as that relates to the process, the materials, the cell architecture to the chemistry and then to kind of join forces with the leading folks in their relative spots in the supply chain.

So we think it's kind of that triple win I was alluding to earlier, good for our shareholders in terms of its capital light, good for the OEMs who get to source kind of our technology, but from manufacturers that they know and trust. And then for the manufacturers coming in, they're getting these what we think are very exciting new business opportunities without having had to put in R&D work. And as we win more customers to the platform, it just keeps expanding their addressable market alongside ours. So that's what we set out to do.

And when we announced this business model with Volkswagen in the summer of 2024, we knew Volkswagen was interested in it. We had conversations with other partners that were promising, but it was a -- we had -- it was more of a hypothesis just how much -- just how widespread and just how exciting we would be. And we had work cut outs like what other OEMs are excited? Are there other application areas excited? Can we get partners on the platform? And I think we've made pretty nice progress. As mentioned before, we're working with 4 of the top 10 OEMs in the world, Volkswagen in the collaboration and licensing phase, Honda in the joint research and joint development stage and 2 of the other top 10 OEMs in the world are in that same stage with Honda. We have collaboration agreements with the top 2 ceramics manufacturers, Murata and Corning, which kind of anchor it.

And as I mentioned, success would have us -- we have all sorts of partners in the background on the supply chain, materials and things. It would be to continue to advance those to the point of where those can be publicly announced as well. So I think we've made traction with Volkswagen. We saw that deal getting expanded last summer. Recent progress, of course, with Honda, maturing that and making it public with Murata and Corning. And then our work is to keep doing more of the same, continue to make progress on the automotive side, make it in these new high-value adjacent sectors, both in space and defense and AI data centers and to continue to flesh out that partner ecosystem. So a great start and more work with positive catalysts to do for investors as well.

Yes. You've given us some numbers around the agreement with Volkswagen PowerCo. Is that like a good framework to understand how you will essentially structure these potential Honda and your other prospective customers?

So I think the -- for the collaboration and licensing phase, that deal, which -- with Volkswagen PowerCo, which had up to $230 million of collaboration payments and basically that same factor as a separate opportunity for a prepay somewhere in that same ZIP code, we think is a nice template for that stage of development.

For the -- remember, for the joint -- for the prior stage for joint research and joint development agreements, those can have funding for collaboration payments as well, but of a far lower magnitude. So it's a stepping stone there. That's kind of maybe one clarification. But you're right that we do see that VW deal as being a rough template for where we would seek to take these other OEM deals over time.

Yes. And so how should we think about the company's cash position sort of into this year and then maybe into 2027? Any sort of like, I guess, milestones we should keep in mind in terms of that metric?

Yes. Balance sheet, strong, ending Q1, more than $900 million of liquidity, something that we see as a differentiator for the company. We are looking at an expanding set of commercialization opportunities, both within automotive and outside of automotive. And I can continue to pledge the same thing to investors as we've done before. We'll continue to be strategic and thoughtful and prudent with that cash balance.

Yes. Well, with that, anything else you would like to highlight before we end the session, Kevin?

No, it's -- that second named automotive customer was a nice step for the company. So that we're quite proud to share that with the public. And thank you for having me and for having us today to talk about it.

Awesome. Congratulations again and thank you.

Thank you, Winnie. Cheers.

Cheers.

Yes, happy to kick off the next session with QuantumScape. We have today the CFO, Kevin Hettrich, obviously, a leader in solid-state batteries. And I think you're going to kick it off with a short presentation that we said...

Yes, just a few minute overview of the company. So Colin, first of all, thank you for inviting us to the conference. It's our pleasure. So QuantumScape started 15 years ago to give the world much better batteries on all the dimensions you'd care about, smaller, lighter, faster charging, safer, longer-lived and lower cost.

To do so, to make that type of dramatic change in all the elements, we wanted to change the chemistry from the lithium-ion batteries we use today to what are called solid-state lithium metal batteries. A brief primer on the difference. So lithium-ion battery, you have an anode, you have a cathode.

The way batteries work is when you charge them, lithium-ion goes from the cathode to the anode and you charge it, like rolling a ball up the hill. When you want the energy back, it goes in the opposite direction. It's called lithium-ion battery because when you charge it, the lithium is stored in an ionic state.

It's held in a kind of a graphite silicon organic electrolyte layer. What we're working on commercializing in solid-state lithium metal. It's called lithium metal because in the charge state instead of being that kind of sponge that of host material, there's nothing there as we manufacture the device.

It's instead stored as a very thin layer of lithium metal. You save weight and volume from the anode that you eliminate. You improve charge time because there's less distance for that lithium-ion to travel. You improve safety because you've removed organic material from the anode and you improve life because one of the major sources of life loss is in that anode that we eliminate.

So that's -- and then the elegant thing is you get all those benefits by not making something. So all of the bill of materials that goes into the anode, all the transformation costs that go into the anode go away.

And to make that system work, the real engineering and process challenge is what is that middle layer that enables that lithium metal anode to work, and that's where the solid-state part comes in.

So we've developed a very thin ceramic layer that enables that system to work. And that's really the core IP. So I'm sure we'll get into all the other aspects of where we are in terms of customers and pilot line and business model and focus as we get into the rest of the conversation.

Sure. Maybe just to kick it off, I mean, I think you were founded in 2010. That's right. You had the Volkswagen partnership in 2012. That's obviously a ton of excitement done. And I think you had prototypes ready by 2020. Where do you stand in sort of the launch time line? Because I think it's taken a little bit longer than expected.

Yes. So when the company was started 15 years ago, it wasn't clear that the material even existed that would let you meet a demanding application like automotive. So the first 5 years or so where you're trying to answer the question, does the material even exist, work down to a subset of materials and finally found one that we thought we had promise.

In 2018, actually Volkswagen in a press release made public that they had seen this kind of working. So lithium metal was very promising. They also announced kind of our relationship publicly for the first time. In 2020, as you mentioned, the prototype maturity at that time were kind of larger single areas.

The remaining work to do at that time was to make multilayer devices and to continue to work on the maturity of the cells as well as on how they're made. We then moved into automotive A-sample stage in that kind of '22, '23 type time frame.

And in parallel, we were making advances in how that ceramic part is made. The company has had to do a number of things that were thought to be impossible in addition to the material. Can you make it thin while it still functions? Can you multilayer it? Can you make that ceramic part continuously?

And can you do so with no excess lithium metal in the system, all of which we believe are required for a compelling product. So we first took -- we demonstrated the continuous processing. We made an 8x improvement in that processing.

We like to use very fast animal names to describe our separator process. The first one is Raptor. And then in 2025, made an improvement on that, a further 25x improvement in a process called Cobra.

If you combine Raptor and Cobra together, 8x25 is 200. So we were then 200x faster than the conventional continuous process that we had, which we think is an important step towards automotive commercialization to have a very scalable process with which to make the ceramic.

We announced the first product in 2024, the QSE-5, published kind of published specs 844 watt hours per liter, just over 300 watt hours per kilogram, charges between 10% and 80% in just over 12 minutes. And we talked about the exciting safety profile of those devices.

Notably, if you get them quite hot, quite uniquely in our system, you don't have kind of a cascading safety event because of the reasons that I mentioned earlier.

Just in -- just earlier this year -- well, actually, let me -- so that was the first product announcement in 2024. We had the global debut of a vehicle demonstration at the Munich Auto Show last September, where we power a solid-state V21L race bike across the stage, a pretty passionate -- a pretty emotional moment having started 15 years ago, it doesn't materially exist to actually see it in Ducati.

That was a wonderful partnership with Audi, who did the system. Ducati, of course, did the bike and together with our colleagues, PowerCo did the cells. I should talk about -- and then we just inaugurated a highly automated pilot line just this February called the Eagle Line. So that sets us up kind of nicely for the next steps of commercialization. I would say that we consider ourselves in that commercialization phase now.

In Q3, we started receiving payments. That first one is from the Volkswagen Group. We are in a -- our business model is one of collaboration and licensing. That was the first example of a collaboration payment, where we take our broader technology platform and then work with customers, who give us payments to either make development specific to them to sample prototypes to demonstrations like the one that you see with Ducati.

That's near-term validation that's cash into the company. And then we're working to set up that longer-term licensing model. So I'll stop talking and let you ask some more questions, Colin.

You mentioned PowerCo. Is that the Volkswagen battery?

Wholly owned battery group. So we've been working with Volkswagen since 2012. They've invested in multiple private rounds as a company, more than $300 million of investment. And then we've struck a collaboration and licensing agreement first in 2024 and then upgraded it in 2025.

There are 2 components to that. One are these collaboration dollars. The current -- the contract has a cap on those of up to about $131 million, where we can collect those against kind of milestones scheduled in the contract.

Investors started getting insight into that, again, with that first payment in Q3 of last year of roughly $10 million. And cumulatively, in the last 3 quarters across all kind of customers and partners, we've done about $30 million. That -- so that's the collaboration part of it. There's a team from VW PowerCo, their wholly owned battery business on site in San Jose right now, I guess, maybe a little early for them, but arriving soon to work kind of shoulder to shoulder with our team on that pilot line.

On the right side of the chart, the licensing side, by far, the larger economic opportunity. They have a license kind of once triggered of up to 85 gigawatt hours, 5 of which can be used for nonautomotive applications if they choose, and there's a royalty structure there in place.

So that's our most mature and advanced automotive partnership by far. We do work with 4 of the top 10 global automotive OEMs. We think of it as in terms of a stage progression at the stage before that larger scale collaboration and licensing agreement.

We have 2 in a joint development stage, where we're doing confidence building steps with that partner towards that larger scale VW-style agreement. And at the stage before that is the fourth OEM, which is a technology evaluation agreement, which we just completed successfully with that fourth top 10 global OEM. They had teams on the ground. They're making comparisons with us versus other technologies that ended successfully. So that's the automotive side of the story there.

So I think you mentioned the Eagle Line, is that, that is with PowerCo? Or is that your own line?

It is our own line, and we're working kind of shoulder to shoulder with PowerCo. So...

PowerCo will be making the batteries for the Ducati?

For the Ducati that we demonstrated, you can think of the teams working together to stand up the line, to operate the line, et cetera. And then those parts went ultimately into the Ducati, and there's additional work that the teams are kind of working on after that.

One of the next goals is to do -- is to still test that Ducati, which is something that the teams are both working on. Our business model is to -- what we're working to is to -- one of our 4 public goals this year is to continue to advance our automotive partnerships.

That includes both Volkswagen, notably with that field testing and continue to making steps towards granting that license and then to continue to advance those other automotive partnerships, including those other top 3 global OEMs, and there are people earlier in the funnel, too.

Just because I mentioned 1 of the 4 goals, the other 3 would be to expand into other high-value markets, where we think the technology is a great fit. The adjacencies you've heard us talk more about in the last 2 earnings calls are aerospace and defense and AI data centers. We can talk more about that if you'd like.

And by the way, it isn't a coincidence that we started talking about that more with us inaugurating the pilot line. That's the first time that we have line of sight into parts supply kind of beyond VW, beyond those other OEMs where we have that sampling-type capacity to engage others.

Demonstrating scalable production off that Eagle pilot line. The goals of that line are to continue to mature development, kind of keep coming down the cost curve to do that type of prototyping and sampling with customers in automotive outside of automotive and to ultimately do that tech transfer-type activity.

Of course, we're working on all the efficiency metrics you imagine we have to in order to hit our annual guidance to produce quite a bit more parts with relatively flat guidance. But the real proof is in the pudding as you see other partners sign on to the ecosystem and other OEMs engage with us in that kind of commercial progression. And then the fourth and final goal is to move beyond the QSE-5. We are a technology licensing company.

Our first product, the QSE-5, we think in combination may have performance attributes that are beyond what lithium-ion can ever do. For us, in a very exciting way, that's just the start of our technology S-curve. You've heard us talk about a few vectors, change in the form factor, QSE-5 is about a 5-amp hour cell.

Of course, making those parts larger as some OEMs have requested is one vector. If you read our Ks and Qs, there's other things you can do on the cathode side. Once you've eliminated the anode that's manufactured, that's theoretically as good as it gets. So a lot of the action goes to the cathode side, both iron conductor and the cathode material. So stay tuned on that over the rest of the year.

Can we just maybe start to take a step back, just broadly, why -- what is the opportunity going to solid state or solid metal is that...

Yes, solid-state lithium metal. So by eliminating the anode, as I mentioned, you save weight and volume. So that I think people intuitively get, if you're designing a product, that might open up products that you can't have if you -- maybe -- I'll keep the example of automotive going.

You can either shrink the battery pack or alternatively, you can put a whole bunch more range into the vehicle that you otherwise couldn't do. Charge time, like the experience at a gasoline station, probably 5 or 6 minutes to refill, we think gives you -- while holding that world-beating kind of energy density constant, getting into that 12-minute type zone, you're starting to get in the ZIP code of the experience that you'd have on like a road trip.

And we think further progress there, of course, is helpful. Actually, in fact, if you show the Pareto curve, that should be a nice way of showing it. Safety, that's also, of course, want safe cells and systems by removing the organic material from the anode as well as substituting today's kind of plastic-like separator that's got memory and it was a ceramic part.

We think those are both steps towards safety. And then on life, there's real value to add to electric vehicles and other applications by extending their life for a few reasons. One is it helps dramatically with the resale value. We found in VW published testing of our A-sample data, we were having about 1/4 the fade relative to automotive specs over extended cycling.

So you can imagine that helping the resale value of the car or other emerging use cases if the cars themselves are just driven a lot more per year, for example, under an autonomous-type use case, that's a pretty compelling benefit. And then at scale and at maturity, because we have the bill of materials for our ceramic is an earth abundant material on all the continents with multiple different suppliers.

And then our method of making, we're really leaning into its efficient manufacturer with that very high-speed heat treatment process. We believe at scale and at maturity of that process, we can actually be both lower cost than the conventional lithium-ion at the time as well as much higher performance in all those dimensions, and that will be a pretty big sea change moment.

Where do you see current like LFP today in terms of cost and where you're aiming to get your technology to go?

Good question. So maybe a global price is in the ZIP code of $80 and within China would be kind of lower. The bulk -- like if you look at other chemistries costs of nickel, manganese, cobalt, for example, or the nickel-rich chemistries, that drives up the price of the cell and also improves performance. I would like to highlight that our platform is cathode-agnostic.

The vast majority of our publicly disclosed data is on a nickel-rich cathodes. We're trying to push the limits of performance. We have shown data with our solid-state separator lithium metal paired with an LFP cathode, just to remind investors that, that is a platform.

In that collaboration phase, it's -- we have discussions with the customer in terms of which cathode would you want, how do you want to trade off power versus energy, what's the form factor you'd like? That would be in the standard type of customization that we would do. If a customer is optimizing for cost, you could go towards one of those less expensive options.

They wanted to push towards energy, which most of them do in our conversations, you'd end up in those -- in that nickel-rich type camp. But as I mentioned, the goal is with maturity and with scale would be to offer both higher performance and a lower cost solution.

But any color on can you get to $60 a kilowatt hour? Is there any public target thing?

It's a function of what you think lithium-ion can do. So if you take the kind of prices in China for LFP are probably in that ZIP code or approaching that ZIP code. If you hold constant that access to the cathode material, maybe most importantly, we would be similar or better. Because we -- there's 3 types of components in the cell.

One is those that we share with the lithium-ion industry. The cathode has got many of the foils, many of the processing steps. The second category is things that we just outright eliminate. We don't purchase the anode material. We don't process it to make anodes, et cetera.

And then the third category is things that are specific to our system, which is that ceramic part. So much of our pricing, the most expensive component like in our kind of long-term pricing model is that cathode material if you hold that nickel -- the current nickel, manganese, cobalt-type pricing constant.

So what would the advantage be? I thought cost was the long term...

It is. If you're holding cathode chemistry constant, we'd be cost advantaged. So if you wanted to -- it isn't a -- there are 2 very different cells, but holding cathode chemistry constant. So if you do an NMC cell or LFP versus LFP, we'd be cost advantaged.

NMC is like $100 a kilowatt hour and something that you get to $65 and similar...

Today, the -- so if you maybe make that a little more clear. You name the -- our partner would name the cathode chemistry. And then our goal would be at scale and at maturity, we would beat it relative to lithium-ion cell. So if they said, here's my lithium-ion cell that's got NMC, our variant we're seeking for both higher performance and lower cost. They said, here is our lithium-ion cell with LFP, we would seek to improve performance and lower cost.

I mean how much lower cost on the same type of chemistry, I guess I'm trying to gauge.

You'd work in some extrapolations. So I don't -- it's a tricky -- you're kind of pulling me out of public guidance there. And the other thing is like if you think about it, our -- as a technology licensing company, the most compelling thing is providing products that don't exist today because of that higher performance.

You should assume we enter through the high-performance luxury parts of the market and that we wouldn't be -- it would be rare that a customer would be considering us and an LFP cell at the same time. Just as a comparison, the LFP-type chemistries are less than half the energy density of the QSE-5. It's a completely different product targeted for a completely different part of the market.

I mean when is the Ducati launching? And is there a car? Any time line of when...

At the Munich Auto Show, the target stated was to commercialize before the end of the decade.

And you said you're working with Volkswagen and that's in a prototype stage on the battery for a car?

So in that collaboration agreement are a set of kind of milestones and demos. The next one up is to do field testing of that Ducati bike.

Okay. Okay. You did mention data center and A&D. That's obviously a big hot topic in auto-type names of getting out of auto. So what makes your product more or compelling in those areas? And what are the functions that those batteries are being used for?

So this is 1 of the 2 high-value adjacencies to automotive that we think is particularly exciting. far earlier days than automotive. Specifically, the use case we are focusing on is in-rack power supply in close proximity to the GPUs.

That is a tiny -- it's a tiny market today. The bulk of the energy storage opportunity right now is outside the data center and often a separate building called BESS, battery energy storage systems, which is predominantly providing a backup-type solution. What we're targeting would be interact near the GPUs to help with high-quality, cost-effective delivery of power to the GPUs. So the GPUs consume power erratically in a volatile fashion.

The most -- we think the most cost-effective way to deliver power to the GPUs is to put in all the infrastructure to deliver the average and allow the battery to do the buffering. You save hundreds of millions of dollars of CapEx-type costs, you reduce the demand on the utility for kind of power supply.

But then to do that, the 2 attributes you'd be very sensitive to, one is volumetric energy density because of the opportunity cost of the real estate. And then the second is safety just because of the value of all of the assets in a data center, it's intuitive that you'd want that to be a very safe solution. So early days, we think that can be a very compelling fit, and we are getting a lot of inbound interest to explore that.

So you'd be actually physically in the rack.

It would be in a cabinet dedicated or in the same rack.

Okay. So it would be different than the battery storage backup...

Correct, which is traditionally lithium-ion outside in a separate building.

Okay. And then the A&D opportunity...

Aerospace and defense. So anything you put in the air, you want it to be light. You're often very want -- you very much want extremes of power for takeoff. And if you have humans in it, safety. So the combination of weight, safety and power, we think, is a great fit with anything aerospace related. And then defense, depending on the application is the same, those similar type attributes.

Got it. Okay. Where do you see -- you mentioned like China being like on LFP at $65 below it 10 years ago, any way that was possible.

Correct.

Is that the plateau? Or do you think they could even bring that lower? I mean, are you sort of trying to get your costs below the lower moving target, I guess?

So our -- it's a great question. We're cheering for the industry to continue to make gains across the board in the materials and the processing and the equipment. We have overlap with the industry in many of the same steps. We share many of the same suppliers.

So we want gains there. Where our differentiation comes from is the elimination of the anode, so the bill of materials there as well as all the processing equipment. We also -- we didn't talk about this. Secondarily, we have a bunch of savings in the formation step.

So that's a step after cell assembly where often in a process measured in a low number of weeks, the cells sit and they form a kind of a protective layer of the anode. We don't have an anode to form a protective layer over so we can skip that step.

That's -- some of -- I believe Tesla has -- or Panasonic has talked about that's actually the most expensive step in their process. And we cut that down very, very substantially because we don't have an anode to do a protective layer against. So -- remind me the original question again? I lost my train of thought there.

It was about -- we're talking about the long-term cost...

So our goal is to -- for our separator to be less than the cost of their separator plus the anode that we eliminate, and we have confidence in doing that. So our goal is to kind of undercut below. Can there -- I think there will be kind of continued cost improvement.

I would highlight that the rate of energy density improvement in the kind of lithium-ion space is very much slowing. We think getting on to a new platform, we get to restart the S-curve, and we have a much more compelling kind of R&D kind of road map. So our goal is to actually expand over time, both the performance and the kind of cost savings.

But at some point, [ if it's a floor and they'll last the batteries stuff. ]

Yes. You can never -- a good -- one good thought experiment is just like what's your magic wand price of just the raw materials. You can, of course, never exceed that. And then the goal is just to get closer and closer and closer.

There's a lot of smart hard-working people, and I expect they'll make kind of year-over-year gains getting kind of closer and closer to it. But that's -- to your point, it's a pretty efficiently made sell, and they are running out of opportunities to do that. And we would be getting on to a new cost curve that's got a lot of room to run.

And what does the -- who are your main competitors today? What does the landscape look like?

That's a good question. So we divide the competitive landscape into 2 parts into lithium-ion, which is -- has that architecture that we discussed. That's what's kind of widespread today.

And then into lithium metal, where those are in the very early part of commercialization. So on the lithium-ion space, we've talked about all the different advantages that we're targeting.

And we think there's structural reasons why you outperform on performance and then the long term also outperform on cost. Within the lithium metal space, we do publish a nice slide in the investor deck, which puts onto a single slide what we think are all the core performance at the same time.

On the Y-axis here is charge time for repeat cycling on the X-axis is life. The size of the circle here is a kind of a nice correlation with energy density. If you have no excess lithium in the system, you have kind of a big circle. If you have excess lithium, you get a small circle.

And then the color is the difficulty of the other test conditions. Red has quite high power or pressure, which would, I think, limit the useful applications you kind of find. Blue, you could probably do with the support of the system, like in automotive products, you have the support of a system, which can help with kind of pressure and temperature.

And then green, we think can work natively, because the cell by itself can work at, for example, at room temperature, doesn't need applied pressure to function. To be an automotive product, we believe you need to be on that line of one, which is a 1-hour charge, 1-hour discharge for long-term repeat cycling to at least 800 cycles before you lose 20% of capacity.

We, of course -- we've shown the chemistry can do that with no applied pressure at room temperature, and we don't do it with any excess lithium metal. We're the only ones who have ever shown that. In fact, we're far ahead of everyone on multiple dimensions as you've seen.

So we don't -- in the fullness of time, it's a hundreds of billions of dollars of TAM, we think, just in automotive alone, you start adding up these other industries, there's room for lots of winners. We don't see anyone who's close to us today. That kind of competitive landscape does keep moving.

The other nuance is people -- there's a diversity of materials in there as well, some of which we've worked with and are skeptical may ever work, but that's kind of the competitive landscape today.

So we're -- so we actually focus mainly until we see someone kind of show the chemistry kind of works, a lot of our focus, we look at what are the trends being set by your CATLs and BYDs in terms of that inexpensive LFP cell, what are the LGs and Panasonics doing in terms of that energy density rich kind of nickel cells, and then we also kind of have our eye on that.

I mean what if you were -- investors were meeting with some of your competitors. I mean everyone always spends their story positively. What do you think are the KPIs that you should be asking about to kind of fairly compare?

It's just what's your prototype performance on all the dimensions at the same time, because it's easy just to focus on one. It's like I have energy density of blank. I have fast charge time of blank. But to have a product, it's a multipart and statement.

You need to be small and light and fast charging and long-lived and hit your kind of cost point in time. So it's -- it would be -- we've tried to be the standard-bearers just in terms of transparency for showing all these metrics simultaneously. And I think if there was a single -- if there was a single test, we would say, just plot yourself on this chart.

It would be a good we'll get on charge...

Because this is the long-term cycling, you're explicit on the rate, you're explicit on the temperature and the pressure. And then you're commenting if you're using excess lithium or not, which would be a real impediment to bringing out a product because if you add lithium that you don't need in the system, it's expensive, it hurts your energy density, it probably hurts your life, and it's not needed.

So this would -- this is probably a nice single -- we think this is a very elegant single slide summary. And it also -- it's like what have you demonstrated not what are you trying to do.

Any questions on... Maybe one, we've seen there's some headlines of BYD doing fast charging, what some of the advantages are fast charging. What is the difference between what they're doing and what your technology could do?

So a good example of, in that case, BYD only talked about the charge speed. So I think it was something like in the 5- to 6-minute type ballpark, which is very compelling. But the question is, what are the rest of the metrics doing?

It's -- anything else is just kind of extrapolation. It's probably an LFP cell, which has less than half the energy density what we're working on. It's almost certainly a lithium-ion cell, which has inferior kind of safety. So it is helpful just to disclose the rest of the suite.

So the -- what is the challenge with their technology? It's just you don't have enough information.

No one does. It's not public. They published the charge speed in an isolation.

Okay. What about other -- you mentioned data center and air and defense. What about -- a lot of people talk about drones. I think it like solid-state competition that's almost unique there. Is that a market you're looking at?

Yes, I would put that into the aerospace and defense ZIP code. So both things that fly in the air and also things that are under the water, I think, are both -- would value energy density gains, the power life safety actually as well.

In a military-type application, you also -- it needs to get to where it's used. And then safety, in particular, is important in those steps. Many things go via the U.S. Navy, for example, use the U.S. military example, and you want safety from kind of point A to point B.

And what about funding? So I think you're burning a bit of cash now. How long -- how do we think about the funding pipeline?

So we -- at the end of Q -- on our April earnings call, talking about Q1 results, we had about $900 million of liquidity. So -- and that is very substantial kind of funding relative to our cash burn rate.

We haven't -- because of the size of the balance sheet, a few quarters ago, when we started doing customer billings, we kind of retired giving kind of cash runway until guidance at the time when we took that out, it was into 2030.

And what we told investors at the time, you guys can see the balance sheet, you can kind of see the cash burn. We think for the current early commercialization phase that inflows from customers is maybe a more useful metric. So it's very strong. So we're a very well-capitalized company, and we think that is kind of both a strength and a differentiator for us in the space.

Just to put out some other kind of -- the other guidance, which we reaffirmed on the April earnings call. EBITDA loss between $250 million and $270 million is relatively flat year-over-year. $40 million to $60 million of CapEx, most of which is for the beyond the QSE-5. And we said we are tracking to year-over-year increases in the customer billings.

Okay. I think we're actually out of time. So thank you very much for joining us. Thanks, everyone.

Okay. Thank you, everybody.

Good day, and welcome to QuantumScape's First Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, today's program is being recorded.

And now I'd like to introduce your host for today's program, Sam Kamara, QuantumScape's Senior Director, Investor Relations. Please go ahead, sir.

Thank you, operator. Good afternoon and thank you to everyone for joining QuantumScape's First Quarter 2026 Earnings Call. To supplement today's discussion, please go to our Investor Relations website at ir.quantumscape.com to view our shareholder letter.

Before we ,I want to call your attention to the safe harbor provision for forward-looking statements that is posted on our website as part of our quarterly update. Forward-looking statements generally relate to future events, future technology progress or future financial or operating performance. Our expectations and beliefs regarding these matters may not materialize. Actual results and financial periods are subject to risks and uncertainties that could cause actual results to differ materially from those projected. There are risk factors that may cause actual results to differ materially from the content of our forward-looking statements for the reasons that we cite in our shareholder letter from 10-K and other SEC filings, including uncertainties posed by the difficulty in predicting future outcomes.

Joining us today will be QuantumScape's CEO, Dr. Siva Sivaram; and our CFO, Kevin Hettrich.

With that, I'd like to turn the call over to Siva.

Thank you, Sam. First, an update on our Eagle Line. This is our highly automated pilot production line to demonstrate scalable production of our solid-state lithium metal battery technology.

In Q1, we completed the installation of the Eagle Line and commenced start-up operations. We are producing initial volumes of QSE-5 cells. We have been working to continuously improve all aspects of Eagle Line functionality, such as equipment uptime, line throughput control systems and process stability.

We've been integrating advanced AI models into the Eagle Line, and we have seen substantive progress on cell quality and reliability. We believe that the increased production capacity at the Eagle Line will help drive a virtuous cycle of higher data volume, more rapid learning cycles and enhanced quality.

In Q2, we plan to ramp QSE-5 cell production to support customer programs across automotive and other applications.

Development work for EV applications remains our core focus and our largest source of customer billings. We continue to work closely with the Volkswagen Group's PowerCo as we advance through the phases of our automotive commercialization road map. The next phase is field testing. Sales from the Eagle Line will be put through a demanding set of real-world test conditions, and that some feedback will be used to learn and iterate.

Beyond our work with Volkswagen. In Q1, we shipped cells to an automotive JDA partner for testing. We continue to work through our 2 JDAs with top 10 global automotive OEMs to bring our solid-state lithium-metal technology into their vehicle programs.

In addition, this quarter, we successfully completed our technology evaluation with another top 10 global automotive OEM customer. Their engineers performed hands-on testing of our technology and ran competitive benchmark against other solid-state technology approaches. With the success of this effort, we are moving into the next phase of this engagement: joint development activities with the ultimate goal of deploying QS technology in their automotive and other applications.

Next, an update on our QS ecosystem. This is the cornerstone of our capital-light business model. By teaming up with world-class companies across the value chain, we can bring our technology to global scale faster and more efficiently. These alliances are a force multiplier for our commercialization efforts as we distribute our technology know-how to trust it partners.

We continue to work closely with both Murata Manufacturing and Corning on scaling up production of our solid ceramic separator using our groundbreaking Cobra process to build a global value chain necessary for our gigawatt tower scale production of QS technology.

Our ecosystem partners are also investing in QS proprietary hardware and systems to produce our ceramic separator. We see this as a clear sign of their commitment to our ecosystem as well as a source of customer billings. In Q1, we recorded our first customer billings from our ecosystem.

Next, a word on new markets. We believe our high-performance solid-state design has compelling attributes to address the evolving energy storage needs of AI data centers, where conventional lithium-ion technology faces safety and performance limitations. Driven by massive compute demand, data centers are transitioning to 800-volt DC designs, and adopting power systems architecture and technology from the electric vehicle industry. We see this as a natural fit for our no-compromise solid-state battery. In-rack energy storage and power delivery is a large and fast-growing market, and the higher energy density of our battery technology can enable increased compute density for AI factories.

In addition, we have seen strong customer interest in our battery technology from global players in the military, aerospace and government sectors. Our battery technology unlocks step-change improvements in both energy density and power simultaneously. Combined with the superior safety of our solid-state design, this is a highly attractive combination for these advanced applications. Our anode-free architecture also has supply chain benefits for these customers. Conventional lithium-ion batteries require graphite that is almost exclusively sourced from China. In contrast, our battery design is graphite-free, eliminating a major pain point for defense applications.

To conclude, I want to take a moment to look at the big picture. The world's energy system is experiencing rapid change. The way we produce, store and use energies are going a once-in-a-century transformation. From electric vehicles and AI data centers to grid storage, drones and aerospace, the future of the world economy is being built on electrification, electrotech.

To give just one example, the speed of change and growth in the AI data center market is breathtaking. The technology of the past is struggling to keep up and innovations in energy storage are essential to this transformational change. Thanks to our years of careful planning, consistent execution and constancy of vision, QS is in the middle of this electrotech story.

From geopolitical disruptions to the energy system and supply chain risks for critical materials to the explosive growth of electrification across the world economy, the tailwinds for our technology have never been stronger. We believe we have the differentiated technology, world-class team, ecosystem partners and customer relationships to capitalize on this revolution.

Even as we tackle the challenges still ahead, our dedicated team is motivated by a market opportunity that is global in scale and growing every day. We look forward to updating you on our progress over the months to come.

With that, I'll turn things over to Kevin for a word on our financial outlook.

Thank you, Siva. GAAP operating expenses and GAAP net loss in Q1 were $109.2 million and $100.8 million, respectively. Adjusted EBITDA loss was $63.2 million in Q1, in line with expectations. For full year 2026, we reiterate our adjusted EBITDA loss guidance of between $250 million and $275 million. A table reconciling GAAP net loss and adjusted EBITDA is available in the financial statement at the end of the shareholder letter.

Capital expenditures in the first quarter were $10 million. Q1 CapEx was primarily composed of final payments related to the Eagle Line. For full year 2026, we reiterate our capital guidance of between $40 million and $60 million.

Customer billings for Q1 were $11 million, representing a mix of customer development activities and ecosystem partner payments.

Customer billings as a metric represents the total value of all the invoices issued by QS to our customers and partners in the period regardless of in treatment. As a reminder, customer billings may vary from quarter-to-quarter due to fluctuations in activity as we progress through various phases of engagement.

Customer billings is a key operational metric meant to give insight into customer activity and future cash inflows. The metric is not a substitute for revenue under U.S. GAAP. We ended Q1 with $904.7 million in liquidity and will remain prudent with our strong balance sheet going forward.

As always, we encourage investors to read more on our financial information, business outlook and risk factors in our quarterly and annual SEC filings on our Investor Relations website.

Thanks, Kevin. We'll begin today's Q&A portion with a few questions we have received from investors or that I believe would interest investors.

Siva, you've outlined our strategic blueprint and laid out our 2026 goals. With the first quarter behind us, can you drive the progress on our core annual growth?

Thank you, Sam. The Eagle Line is central to us. We are using the Eagle Line to demonstrate scalable production so that our licensing customers can take our technology and scale it up. You can measure progress in 2 ways, the technical side and the commercial side.

On the technical side, the Eagle Line is making the expected progress as we ramp up. The team has been doing great work together with PowerCo. The day-to-day is all about getting the detail right, equipment uptime, line throughput, control systems, process stability and so on.

The improvements we have made in reliability are enabled by some of our new AI models that take data from our metrology make determinations of the quality faster, more accurately and more consistently than a human could possibly do. This enables an accelerated feedback and feed-forward loop which drives the continuous improvement cycle faster. We shipped samples in Q1. And in Q2, we'll be ramping to support more shipments. That's the technical side.

On the overall commercial side, we have great customer traction across major geographies in the automotive business, Europe, North America and Japan. We are working closely with VW on field testing in the near term, leading to large-scale production transfer.

We have shipped cells to an auto JDA partner, successfully completed the technology evaluation with an additional top 10 automaker. All told, that 4 of the top 10 that are well engaged in our auto [indiscernible].

We are seeing our ecosystem business model also gaining momentum. Our ecosystem partners are making investments in hardware and systems to make our technology, which shows their commitment to the opportunity. Not only that, but these investments are beginning to flow through into QS customer billings. Our work on automotive ecosystem engagements and the higher throughput of the Eagle Line comes together to give us the resources that we need to go after some new markets faster.

Thanks, Siva. On the new markets you've described, what makes the opportunity in AI data centers and defense interesting?

Sam, we think the opportunity for our technology in AI data centers is obvious and compelling. It's early days, but right now, I would call it a great addition to our automotive portfolio. It ticks all the boxes. The size of spend in the market, the growth, the product market fit and our ability to create and capture value.

The requirements for in-rack power solutions align well with our technology. You need better energy density to increase the compute density of the data center. You need the power performance, charge and discharge, to provide power smoothing for these AI workloads, which from the battery's point of view is almost like being on a racetrack. And safety really matters for a data center, where operating temperatures are higher and a fire in a GPU rack could easily cost millions in damage and downtime.

Our differentiated technology allows us to do things traditional lithium-ion cannot do. Better performance with better safety lets you get closer to the system and provide power over the last meter.

We are setting up for this opportunity as well as other markets like military, aviation and space. We have added Ross Niebergall to the Board and Dr. Mark Maybury as an adviser to help us with these opportunities, and their expertise and networks are extremely valuable. We are really excited about these new markets, and we'll be shipping samples from Eagle Line to meet the increasing inbound customer interest.

Kevin, we report first customer billings from ecosystem partners this quarter. Can you explain why that milestone matters and what it demonstrates about the longer-term economics of our business model?

Our first customer billings from ecosystem partners are an important milestone for 3 reasons. First, this is an indicator of ecosystem investment in our technology platform. We believe this accumulation of investment by partners is an amplifier that is a strength of our capital-light business model. Second, these billings are an additional source of cash flow to the company as we transfer equipment, processes and know-how that enable our partners to move faster while retaining QS ownership of the core technology. Third, similar to our business model with customers, we plan to earn longer-term ecosystem licensing payments and royalties. We believe these ecosystem payments will be an important driver of shareholder value creation.

As a reminder, we define customer billings and total value of all the invoices issued by QS to our customers and ecosystem partners during the period regardless of accounting treatment. This is an operational indicator rather than a substitute for GAAP revenue. The amount and accounting treatment can vary by agreement by quarter. But taken together, we believe they demonstrate growing external validation of our technology and the flexibility of our business model as we scale.

Okay. Thanks so much, Kevin. We are now ready to begin the line portion of today's call. Operator, please open up the line for questions.

And our first question for today comes from the line of Winnie Dong from Deutsche Bank.

I was wondering if you can potentially qualitatively characterize the ramp of QSE-5 production in 2Q. It seems like there's going to be some steep, I guess, quarter-over-quarter improvement in terms of the output, but I was wondering if you can characterize it as perhaps like qualitatively or even directionally?

Winnie, yes, we are building the ramp of the Eagle Line in Q2. As you would expect with a highly automated lines such as the Eagle Line, once we have installed and started beginning the initial volume of cells, we need to continuously improve the uptime, the throughput, the control systems, the process stability, all of this to continuously improve. And then there is an ongoing demand for samples from our automotive customers and from these new markets that we are attempting to enter, and these demands pile up. So Q2, we'll begin ramping, and we'll continue to go up satisfying these demands through the rest of the year. That gives you a good feel for how fast we are ramping the Eagle Line, Winnie.

Okay. Got it. And then second question is on the expansion to new markets. It seems like you think the sales can really be used for energy storage and data center. Maybe can you talk about some of the potential investments that you may need to put into this, and then what kind of time frame we're looking at in terms of launching a potential product for that? Is it -- does it need like some substantial change in terms of the technology and products? Or is it an easy sort of like transfer into that market?

Yes. That's a very interesting question, Winnie. Most of the learning from automotive business transfers here. The data center market is going into the 800-volt architecture. And many of the requirements are very similar with respect to energy density and power density and cycling life, et cetera. However, the most important thing we have to offer in addition is the safety and the no-compromise nature of the product, meaning you don't have to sacrifice performance for safety. You can have the product as close to the compute as possible. This is what we mean by last-meter power. And in all of these AI data centers and the AI factories, what you need is to be able to maximize the compute density. And so the ability of ourselves to be close and deliver high-quality last mile last meter power is what makes us very attractive. And it is a natural transition from the automotive product to the data center product.

And Winnie, I'm happy to take the capital allocation part of the question. As you know, our strategy is to develop technology platforms that serve multiple markets. The bulk of the investment goes into developing platform. It's more incremental to tailor our product and to engage customers and where we see incremental investment opportunities in the best interest of shareholders, of course, we're going to go after them.

We're very excited about the new high-value markets that we mentioned in the letter in our remarks. And as a reminder, one of our goals, number three, is to expand into high-value markets. our annual operating plan and the financial guidance upon which base already contemplate that. And in today's call, we reiterated our adjusted EBITDA guidance, our CapEx guidance. And we also reiterate that we are tracking to our year-over-year increase in customer billings, all reiterated on today's call.

And our next question comes from the line of Ben Kallo from Baird.

Congrats on the first billings. Just maybe on the last question, if you could expand just would it be similar in a license model? Or is it something that you could do under [indiscernible] the expanded purview that you guys did a while back?

Ben, it's exactly correct. So we will be looking at both of those. Initially, the samples will come out of the Eagle Line. Additionally, PowerCo has 5 gigawatt hours of capacity tenor markets outside the automotive. And we will continue to find other opportunities for these markets as well. And so all of these are, as you said, right in our path of how we want to take it through. The ecosystem also plays a big role. Our ability to ramp the separated production from either Corning or Murata helps with this. And we expect to see the same phenomena to happen with our equipment and materials partner who all will help us with this ramp.

And then just taking to that, just moving on to the other auto OEMs that you're working with, could you just talk about kind of what -- if there is kind of a view on the progression of turning those to the formal licensing partner with the JDA and the formal licensing partner like a time frame or any kind of like what they're looking for to solidify that relationship?

Yes. Ben, thank you. Thanks for the question. Yes, upfront, I want to say, 4 of the top 10 auto OEMs level are now actively involved with us across the major geographies North America, Japan and of course, Europe with Volkswagen. And in all cases, we are carefully going on the progress with evaluation to joint development working towards licensing. As you know, Volkswagen is the most advanced in that relationship. The others are well on their way for us to progress towards a license from that. And all of these, of course, run through the Eagle Line. The Eagle Line makes the difference in our ability to sample and move this process along towards licensing.

And our next question comes from the line of Mark Shooter from William Blair.

Congrats on all the progress this quarter in the Eagle Line and the new auto engagement. So regarding the OEMs and the field testing as the next step, my understanding is that you'll need to size up the cell from the QSE-5 to fit into VW's unified cell architecture. So do you still need to do that for field testing with them? Or are they now taking the QSE-5 to field test? Or is another customer that you're working with, leapfrogging VW and beating [indiscernible]?

Mark, big interesting question. Yes, we are field listing with the QSE-5. As we demonstrated with the Ducati bike last year and onwards, they will be field testing. But you are absolutely right, we have the unified self to work with, and they are working closely with us to design that still as well. And I expect that each one of our OEM customers will want their specific form factors as well. And we work with each of them.

This is one of the biggest advantages of the licensing business model is that our separator can handle all these form factors, but they -- I will be working with us on how to ramp on their specific needs.

Great. Siva, that's very helpful. Switching to some other markets here. it's very evident where you're trying to go by the people you've added to the Board with the former military defense contractors. So I'll ask about the potential drone market in aerospace and defense. Your auto sample cell, the QSE-5 has a significant performance advantage for autos, but I'm wondering if there's some juice left per se. And if you were to redesign that for a drone spec because drones they require a higher specific energy density, but also they don't need as much cycle life. So I'm wondering if there is an [indiscernible] term like separator thickness and cell packaging where that could give you some torque on some performance improvements.

You are 100% correct, Mark. One of our goals for this year is go beyond QSE-5. As we keep repeating, we are just at the start of this S-curve. There are many levers still left to move us up the performance curve. And please allow us to come and show you what we are developing sometime later this year. And they'll be applicable not just to the drone market but to all other markets as well. So we will continue to push the technology frontier for all of this. The separated technology, the ceramic separator is the key to our sales architecture and its performance, and we will continue to evolve in all fronts to make the self-adapted to different applications.

[Operator Instructions] Our next question comes from the line of Mark Delaney from Goldman Sachs.

You've got Ayush Ghosh on for Mark Delaney. On billings, how should we think about the potential increases in billings going forward, considering you recorded the first billings from the Go system and also with the new JDA and other non-auto end markets?

Ayush, thank you for the question. In fiscal year 2025, we recorded approximately $19.5 million in customer billings. In Q1 '26 on this call, we recorded $11 million in the quarter. If you recall, our guidance is to increase billings year-over-year 2026 compared to 2025. And we reiterate that guidance today.

Got it. And then separately, you also mentioned you transitioned from the technology evaluation to the JDA with the top 10 OEM and congrats on that. Can you sort of speak on some of the benchmarking tests what they were and how QS performed and also what some of the initial feedback was?

Yes. I would love to talk about it. These are hands-on in-lab evaluation by these customer engineers in our pilot facilities. They spend a lot of time working with us, making the cells and measuring them here. And they have a lot of experience in solid state in their own labs and of course, all OEMs [ kick ] the tires from around the world. And these are top 10 OEMs. They are not novices to this technology, and they get actively involved with this. And for us to feel good about moving to the next stage, that makes us feel good and sort of ratifies our own confidence in how far we have been in this differentiated technology.

And our next question comes from the line of Laisha Zaack from HSBC.

Can you hear your me?

Yes.

I just have one very quick on timing. I wanted to know how this is going into these new markets changed the time frame that you've set for your automotive goals? Are they like -- are these new possibilities on some of the human capital that you does on [indiscernible] and the teams that you have established for automotive? Or are you going to start to expand your workforce, your teams, your resources, like how does this work? How should we take on it?

Laisha, a great question. The automotive marketplace still remains an important focus for us. We are adding these additional markets to our automotive portfolio. We are adding customers in the automotive marketplace. 4 of the top 10 are joining us. So it is not like we are taking our eye away from the ball with respect marketplace to automotive. However, these new big growing marketplaces with respect to data center and different set of space are very good fits for our product. So as Kevin mentioned earlier, at the start of the year, we had looked at these markets and appropriately sized our resourcing for this as part of our annual operating plan. So we have well resources, and we'll continue to invest as needed. This is not an either or. We are looking at both of these opportunities with capturing and -- creating and capturing careful the value.

Thank you. This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Siva Sivaram for any further remarks.

Thank you, operator. Finally, today, I want to recognize the entire QS team for their execution and thank our shareholders for their continued support. We look forward to updating you on our progress in the months ahead. Thank you.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.

Okay. Good morning, everyone. Welcome to day 2 of UBS Virtual Solid State Battery Day. We're really pleased to have QuantumScape presenting in this session, and we have Kevin Hettrich, the CFO, who's going to take us through some slides. His slides are up right now on screen. So please have a look at your screen to follow along with the slides. The format today will be, we'll go through the prepared remarks, say, 20 to 30 minutes, and then we will open the line for Q&A. As usual, you can feel free to e-mail myself or Sherry with any Q&A that you might want us to ask. [Operator Instructions] And with that, I will hand the call over to Kevin.

Tim, thank you kindly for the invitation to participate today, and good morning to everyone. What you see here is our select set of slides from our investor deck, and you all should feel free to download those from our website. So just to kick things off, QuantumScape was started 15 years ago with the goal to develop significantly better batteries on all the dimensions that are important to consumers and to help commercialize them.

We've been focused on the automotive space. And over that 15 years, the first 5 years or so, we're focused on finding material by which we could commercialize a lithium metal chemistry. We'll talk a little bit later about why that's so important and how it links to all the benefits that I mentioned.

In 2018, we announced a public relationship with Volkswagen based off the testing of our first small single-layer cells. Over the coming years, in 2020, we started doing full commercial sized parts. We were multilayering it, kind of culminating with our first automotive A samples at the end of 2022 that we shipped. Two years later, we did our first automotive B samples in October of 2024.

And then last year, and there's some more detail on the next slide, we did our first vehicle debut, where our first product, the QSE-5 cell powered a Ducati V21L race bike across the stage at the Munich Auto Show, which is a pretty emotional moment for the company, having started out 15 years ago, not knowing if material existed that could meet automotive requirements to then having it be in a first vehicle demonstration. And just last month, and I can say this for a few more days, just last month, we inaugurated our Eagle pilot line here in San Jose, which is a highly automated line that makes those QSE-5 cells.

And then here is a shot from that day of that Ducati coming on to stage. What's so nice about a bike as a program for us is that it's a very demanding use case. If you think about the acceleration and deceleration of a bike going around the track, that's a fantastic opportunity to show off the power capabilities, volumetric energy density would translate into more range and then safety, the pack is literally between the legs of the driver.

And then being a smaller vehicle that helps us with more end in terms of the accelerating the rate of testing and learning. In this particular project, Audi did the packs for us, Ducati did the bikes. And then together with PowerCo, we supplied the QSE-5 cells. And importantly, cells in that pack, there were cells that had come off of our Cobra separator process, which we had just baselined a month or two earlier, which kind of shows off the speed with which we can go from baselining all the way into sample products. So that was a fantastic moment for the company. And then in the lower left-hand corner, you can see one of the separator sheets, you can see one of the cells, and you can see a battery module of QSE-5 cells.

So here's the QSE-5 announced in October of '24. The combination of volumetric energy density, gravimetric energy density and safety in the same cell is unmatched to our knowledge on the earth, 844 watt-hours per liter, over 301 watt-hours per kilogram cell discharged in 12.2 minutes and then has wonderful safety properties. We have mentioned in other context, you can heat the cell up to a few hundred degrees C and you don't see a thermal event from the cell.

And I alluded to lithium metal chemistry. The reason why we targeted this and we've worked so hard on the commercialization path to bring it into the automotive market and into other markets is because of this chart here. So on the left, you have a -- let's see, this is the left, you have a single layer cell from a conventional lithium-ion. On the top, you have an anode. On the bottom, you have a cathode. In between, you have a separator, current collector of both sides. When you charge a cell, the lithium goes from the cathode to the anode, it's a growing ball uphill.

When you discharge the cell, you want the energy back. It's like the lithium goes from the anode back to the cathode. It's a growing uphill and you get it back up and back. The benefit of a lithium metal cell is shown on the right in the version we do, which is the desirable variant, as manufactured, there is no lithium anode, we call it anode-free as manufactured. The current collector touches the separator.

On first charge, lithium that's already in the cathode material that you buy, just like anything else, plates out on that first charge. And the elimination of the volume and the weight from the anode, if you compare the column on the right with the column on the left, you can imagine the volume and weight savings, that's volumetric and gravimetric energy density. If you imagine you lithium-ion going from one side of the device to the other, the distance you're traveling on average from the middle of the cathode to just the other side of the separator, you've roughly reduced in half. And so that's the charge benefit that we talked about that enables that 12.2-minute charge of QSE-5.

In terms of life, one of the major sources of life loss occurs on the anode of the conventional cell where the liquid interacts with that graphite silicon structure and forms a layer of what's called a solid electrolyte interface. As that cracks and reforms over time, you're chewing up active material and adding to resistance to the cell. We don't have an ion conductor in the anode. It plays on the other side, nor do we have graphite silicon type structure. So the elimination of that major source of life loss, we credit with the wonderful capacity retention that investors have seen in our A-sample testing.

Safety. So we talked about energy density, we've talked about charge time. We've talked about life. The other 2 elements will be safety and cost. Safety. The separator itself is an organic material. The anode is flooded. It is an organic material and is flooded with an electrolyte, which is also an organic material. So we replaced the conventional separator with an inorganic ceramic, and we eliminate the organics from the anode side.

So it's that reduction of organic material and then the inclusion of all these inorganic separator sheets throughout the battery that we credit with the safety performance data that we've shared with investors. In the QSE-5, there is one organic material in the cell that's in the cathode that is the electrolyte we use for ion conduction. So we've substantially reduced it. In the QSE-5, it's not -- there is that one lone material, but the reduction we credit with the safety improvement.

And then finally is cost. At scale and at maturity, we believe while delivering that performance, the cells will also be lower cost because the savings from the anode, both the graphite silicon you're eliminating combined with the liquid electrolyte is more savings than would be required to replace the separator with our -- the conventional separator with our ceramic part. And that's the 5 major benefits that people care about and hopefully, a little bit of intuition with how they link to our architecture.

One final comment is that our choice of cathode material would be something we would tune and to the application or to the preference of our customer partners. Across the board, with the initial prototype we've done, the vast majority of our test data is on a nickel-rich NMC because our customers want to push the limits of what's possible in their products.

We have shown historically data as well on LFP, which is a different product positioning, also intellectually interesting where you're pairing the world's cheapest anode, which is nothing with the world's cheapest cathode material, but more on that to be discussed in the future. Dan had just done a bit of a peek reveal of how is the QSE-5 compared to multiple automotive cells on the road. What we've plotted here on the Y-axis is charge time, which is shrinking as you go up as well as volumetric energy density on the x-axis. And that forms kind of a power to energy frontier.

And the QSE-5, our goal in the QSE-5 and subsequent generations is to keep pushing that frontier further and further out. In any cell chemistry, you can trade off those 2 dimensions generally by making the cathode thicker. You improve energy density and you hurt power and you can kind of go up and down that line. Our goal with the QSE-5, we pushed that line out. And with subsequent product development, the green would be a larger form factor using the same technology of the QSE-5 is to keep pushing that line further and further out.

You actually don't see LFP cells on this because we started X-axis at 500 watt-hours per liter, they would be plotted off of the chart because that's not a very energy dense cathode choice. I mentioned -- I alluded to you get these benefits by the elimination of the anode line and a conventional factory does 4 things. It makes anode, it makes cathode, it assembles the cell and then it test them. So I'll talk about 2 of those areas. So we don't need to make the anode and electrode. That's -- of course, that's the source of many of our benefits and cost savings. The other thing to highlight is that we don't need to form that solid electrolyte interface layer either.

So in the formation and aging step in a conventional lithium-ion plant, the equipment that does that, that forms that solid electrolyte interface layer often occupies 15% to 25% of the floor space. And that's a capital-intensive step. It's time intensive and you're tying up a bunch of inventory. So it's actually also one of the most expensive steps in the factory, and we substantially reduced the time required because, as I mentioned, we don't need to form that solid electrolyte interface layer. So those are the 2 major areas where we expect cost savings.

And it's not enough to have performance in the cell itself, you need to hit the scale and the quality and the cost points of the automotive industry. Our core IP and our unique part is that ceramic separator. And the 2 elements that are required in order to do so at scale and then at maturity to, in fact, outperform lithium ion at cost. is to make that separator very cost effectively and scale and quality.

So what -- in ceramics manufacturing, the most expensive step is often the heat treatment step, and that's the area where we worked to innovate. In 2023, we were on a continuous process to make our separator that tends to be where you'd want to start with cost-effective processes that they'd be continuous. And working with a vendor to modify their tool, we sped it up by almost an order of magnitude, and we call that our Raptor process.

And then last year, approximately in the summer, we base lined our Cobra process, which is yet another order of magnitude on top. If you combine the improvements of Raptor and Cobra together, they're roughly 200x faster in terms of heat treatment time than the continuous process from which we started. So that type of innovation is transformative for the cost of making our separator part because you're driving so much throughput out of the most expensive step in ceramics processing. So that's the process part.

And then QuantumScape will talk about in a minute, we've adopted a licensing model where it's our job to innovate, to take something to a pilot level, B-sample level of maturity and then off of that line to win customers, to strike licenses and to also enable the rest of the supply chain. The reason I bring that up is last year, we also announced partnerships with arguably the 2 -- the world's 2 leading ceramics players, being Murata in Japan and Corning here in the United States.

And we're very excited about that partnership and that we think we both bring a lot to that ourselves with the combination of materials and equipment and process that makes these separators, which enables the performance that we talked about. And then Murata and Corning, you have world-class manufacturers who use the example of the multilayer capacitor industry, the MLCC industry, they make tens of billions of MLCC capacitors and those costs a fraction of a penny or a small number of pennies a piece. And just they are amazing products with their thickness control and uniformity. So we couldn't imagine better partners to work with industrializing and taking this to scale.

And then we included -- this slide is a favorite from investors, one in which we get a lot of questions. We think the data is the best place to start. And what we've done is we -- against this chemistry, lithium metal chemistry, which has the benefits that we discussed in terms of energy density and charge time and safety and life and at maturity and scale cost as well. We've plotted the prototype data around the world that we're aware of, on the Y-axis is charge time. So this is the charge time you use in repeat cycling.

On the X-axis is the cycle life until 80%. The size of the circle is correlated with energy density. If you have no lithium -- if your anode-free is manufactured, you have a big circle as an approximation for energy density. If excess lithium is applied, we give a smaller circle because that would hurt the energy density.

And then finally, the color. Red would be something that has temperatures and pressures that exceed what's used in the automotive application. Blue is you're kind of in the ZIP code in the automotive application and what an automotive system could provide. And then green means you can operate at room temperature and no applied pressure and then you have the full range of applications open to you, including consumer electronics and -- any other type of application, there's not a system around supporting you.

So you see based on the data, we are far ahead on multiple dimensions simultaneously. And for us, looking at this chart, you actually have a combination of different materials being used. You have their ceramics and polymers and sulfides and each has their own independent challenges to them. And outside of QuantumScape and the ceramic we use, there is no proof point of -- to date of another material matching the types of performance that we've demonstrated.

And then just very briefly before we wrap it up, we've been working with Volkswagen since 2012. And that's the Volkswagen Group, which has many of the world's most iconic brands, we kind of show on the lower left corner, like Porsche and Lamborghini and Audi and BUGATTI and Ducati, et cetera. They've been an investor in multiple rounds. We're a JV and then later licensing partner, the Head of the Center of Excellence serves on our Board as 1 of 2 VW members.

In 2024, we struck a licensing deal with them that goes up to 80 gigawatt hours and put a team from PowerCo here on site to develop and bring up the Eagle Line together. And then last summer, that deal was expanded and enhanced to go up to 85 gigawatt hours, that last 5 being usable by PowerCo outside of the automotive sector and then giving the company up to $130 million of payments we can earn by achieving blocks of work that are laid out in the agreement. The world saw the first of those, which was that debut at the Munich Auto Show.

In this VW, there's a nice kind of pipeline of many of the who's who of global OEMs. The way we think about it is there's kind of a technology evaluation agreement where you're having engineering discussions. There's a more mature version where you're actually doing joint development and joint research together. And then the final node and maturity is what we've created with Volkswagen, which is that full-blown collaboration and licensing agreement with the magnitude of payments that we have.

And we'll talk about the goals later is to continue to execute on the Volkswagen relationship while we advance those other automotive relationships. And the only other final thing I had is, and as Siva mentioned in the recent blueprint video, we've received a lot of inbound interest from nonautomotive applications and particularly applications that put a very high premium on battery performance.

Some examples we've talked about include aerospace, defense, robotics, AI infrastructure, et cetera. And one of the 4 public goals that we talked about was to go beyond automotive into these spaces. But Dan, if you go back just very briefly on that licensing example. So we're a licensing company, as I alluded to. There are 2 major sources of cash flows from customers that are possible. The first under the collaboration phase is we would take a technology platform like the QSE-5, here's a QSE-5, here. And we work with the customers to say, what's exactly the dimensions you want? What's the exterior form factor that you want? Do you want to play with the choice cap thickness, et cetera? And we would do development that is tailored to exactly what they want.

And in exchange for doing custom development for them and the up time in our pilot line and our own internal resources, we would seek a cash compensation for that. What's nice for investors in that model is that this is a far more asset-light model than doing the manufacturing yourself. We have to sink very high sums of capital into the ground and then bring up the factory before you actually return cash flow to investors.

In this case, we're actually able to receive from customers cash flow quite early in the process, which we see as in-period validation of what we're working on is important, and it's an important source of cash flow, especially in a success case as we line up multiple automotive customers at the same time with active collaboration payments. The incoming cash can get exciting.

Longer term, by and far, the larger economic opportunity is when a customer takes the license and is producing out of their factory cells incorporating the technology in the license. So at that point, it would be a high-touch licensing model, we support our partners however we tend to make that transfer successful. And then that would be where the bulk of the economic opportunity would come from.

And then as a technology development company, it's our job to continuing to push generation after generation on a rhythm and to develop the materials, the process and the equipment as well as the supply chain. And you saw the first 2 examples of publicly announced partners in the supply chain in Corning and Murata. And in the future, we look forward to sharing additions beyond that.

I think that's -- I think we wrap it up with what we're focused on in 2026. We've had a great track record of saying what we're going to do and doing what we said in terms of our public goals. So we look to keep that up in 2026, where our goal is to do 4 things. One is to demonstrate scalable production on that Eagle Line that we just brought up. The second is to advance automotive commercialization with Volkswagen. Siva mentioned field testing with that V21L race bike this year and to continue to progress those other automotive relationships forward.

I touched on briefly the new high-value markets. And as I mentioned, the QSE-5 is the first step in the road map, and we will talk more about what's coming next. So that's QuantumScape at an overview level, and I'd be happy to shift to questions with you at Tim as well as at the end of the call, any questions that the broader set of investors have.

Thanks, Kevin. [Operator Instructions] I've already had some questions come in over the line. So I will kind of kick off. Yes, the chart that you showed with the green and the red, basically the dot chart that you showed was -- did attract a lot of attention, right? And we kind of had a -- like yesterday, we had a lot of talk about pressure and that being a problem because if you -- it can add weight and cost and be a drag on energy density.

So when we think -- and it seems like the other players we spoke with were using pressure to inhibit dendrite formation. So is -- in the case of QuantumScape, is it the ceramic separator, the key -- I guess, the key component that's inhibiting dendrite formation and allowing us to avoid this kind of having to have the cells operate under pressure?

That is a very good question. So first, I preface it that your conclusion is right and that we think for automotive, maybe a few atmospheres of pressure. We define it here as 2 to 5, you could kind of think of a pack design around it. What's more typical, I believe, is closer to 1, and that's where you see we've taken all of our testing for automotive. And then we've shown no applied pressure as well. And that isn't in our core baseline, but we've shown our capability to do that and something we'd like to bring into our baseline.

So the advantages being the ones you mentioned, the cost, the complexity, imagine just like the challenge of pack assembly at very high rates of pressure. And then if you think about, yes, you may -- in a system where you use pressure, that might help with dendrite resistance or suppression, but just imagine what that's doing to your components over time. We think that can also hinder life loss.

So we set as a goal to effectively do the same thing as what our customers are used to lithium-ion and we achieve that. And how do you -- it goes to the separator and it goes to the interfaces with the separator on both sides, and it goes to the cell construction. So I'm going to hold up a QSE-5, and I'll see how we can closely get here a little bit of an angle, that doesn't focus.

You see there's just an imperceptible like little ridge around it. And what that ridge is doing is that the difference between the charge and the discharge state might be about a millimeter in this design. So the frame doesn't move and that little bit of expansion is actually accommodated inside that frame. So we call it the flex frame. We can also do this in a prismatic cell, imagine a hard prismatic cell, the frames inside and the exterior dimensions of the prismatic cell don't change.

So that's how we handle the expansion. We don't change the exterior dimension. So we're not trying to fight the cell. It's actually expanding within the volume that we've kind of created for it. So the combination of that, the separator material and interfaces on both sides, it's really all of those things together, and it was not a small amount of work. And what we found is that over time, as an idea -- if it's an idea, a cell design, a process, a step as it gets more mature, it actually gets simpler and more elegant. And this is an example that we think is actually a very elegant solution to controlling volume expansion.

Thanks, Kevin. Helpful explanation. And going to the manufacturing schematic that you showed earlier, so that we don't have -- the anode side of the process is taken out. But on the cathode side, and you also spoke to the formation with the savings that we would have with eliminating expensive or long formation process. Are we able to use in terms of like the mixing and the calendering and the slitting and so on, is this kind of able to use existing lithium-ion infrastructure? Or is a lot of this new equipment that's specific to your process?

At the zeroth order, the answer is yes. Like the cathode, the materials, the process is very similar and uses the same or very similar equipment throughout. And so the answer there is yes.

And on the anode side, like when we talk about anode less, are we still -- are we -- in the in-situ lithium metal formulation that we're doing in situ, is that forming onto a substrate like a copper foil current collector. So we still have some type of current collector that...

Correct. So it does form on to a current collector, and then I'll get a little technical on this one. So what's very interesting about conventional lithium ion, same thing is on first charge and that structure on the column, I need to do the reverse here on the -- hopefully, I'm lining up the same way for investors.

In the conventional cell, when you charge at the first time, the lithium goes into the structure for first time. Same thing for us. And in order to accommodate for the SEI layer, that solid electrolyte interface layer, they put more lithium in the cathode than you actually need to cycle back and forth because they're planning for a moderate amount to get lost on that first cycle.

So what's neat about us is that on the first charge, we do that first plating and never again is that current collector bare because that first charge has a bunch of excess lithium in it. So that's -- it's a pretty -- it's a beautiful fit with the existing cathode material that's effectively over-lithiated to accommodate for that SEI formation. So we do on the first charge in our own factories, that first formation step and then -- which is, again, a tiny fraction of the time of what it takes to do an SEI, but we would do that and then you would never see a bare current collector again in normal operation.

And like recently in the presentation, we've been talking to some of like lithium metal film type players. And we kind of -- in terms of the upstream scaling of lithium metal, there seem to be real issues. But for this analyst design, are we just using commercially available either hydroxide or carbonate, so we don't have to worry about sourcing upstream lithium metal?

The simplest was buying the cathode material from the cathode manufacturers, whatever precursors they think are most cost effective, make the supply chain most robust, lead to the highest performance. It's buy the conventional cathode material basically is the answer to that. And then the question for the advantages are very clear. It not need to start with the lithium metal foil, cost, energy density, handling during manufacturing. It's a big advantage and would be a very big headwind to overcome in your cell design and competitiveness if you wanted to include it. You really shouldn't need it because there's more lithium metal than you need to reversibly cycle in the cathode material that you buy.

Got it. [indiscernible] I see you have your hand up. [indiscernible] please unmute yourself and the floor is yours.

This is [indiscernible] covering the automobile space. So Tim discussed about the pressure, I want to discuss the same topic on the mass production side, okay?

Yes.

So can you please explain what's the advantage of the uniqueness of our Cobra process? And especially I'm interesting in the pressing process like pressing the machine, the partner with machinery company also [indiscernible]

So there's a lot of -- I -- so let me -- I'll show what I can. There's a lot of IP there. So we use the names of 2 fast animals, a Raptor and Cobra because they're speed. So the difference that we care about is the heat treatment time, that centering step is how quick can we make that -- so a given tool doing it is as productive as possible. And that's to think about depreciation, think about square footage used in the factory floor, think about the energy, any type of consumables, et cetera.

So our desire was to make that as fast as possible so we could drive throughput and take down all of those other costs associated with heat treatment step, which is classically substantially the largest cost step in any type of [indiscernible] manufacturing.

So how we do that was, I think, quite innovative. And to be candid, that was one of the things in addition to the business opportunity that attracted Murata and Corning is they're also really excited at that process that was innovative to them as well, and we're excited to see how much further we can take that together. So it's related to speed. And the Cobra, we think of broadly as the process to make the separator, but the real innovation is in the speed of heat treatment there.

The only other -- final thing I would say, as we've shared before, is Raptor was done with the modification of an existing continuous tool or work for closer to the supplier. Cobra having shown that, that's a vector we can do, we said how hard can we crank that vector, we did some proofs of concept in parallel with the Raptor tool to show that it could be done. And then we worked with a supplier to actually do a tool that's more special that actually implements those proof of concepts into a pilot line level tool, and then that's Cobra. So there was roughly a year between generations there, and we baselined that successfully sometime around June of last year and cells made off of the Cobra process went into that bike that went across the IAA stage.

So what do you think is the current stage of like to reach the ideal mass production -- a step as mass production process because there are lots of debate of testing process like WIP, HIT or ISP, there are still, I think, is not the standard for how to produce the solid state batter. So what's the current phase of QuantumScape?

So in terms of maturity, I would say you're at -- we've been producing B samples. We're on an automated -- a heavily automated pilot line here in San Jose. And where we are is that was just announced last month. So it's been kind of brought up and all the things kind of worked out towards the goal of the demonstration.

That line does 3 things. One is to produce a whole lot more parts that's useful for internal development. That's kind of the first goal to continue to mature, to root cause, the types of things you work out to drive uptime and yield and reliability, all those things that you do with systematic, methodical, iterative process development. That's goal one. Goal 2 is to make a whole bunch more parts for Volkswagen, for the other automotive OEMs in the pipeline and beyond automotive. And then the third is this is the basis of tech transfer.

So following success here to use the case of Volkswagen and PowerCo, they would then order a larger equipment set based on what they would learn here, and we use that as an opportunity between generations to make improvements. So Thomas Schmall during the Munich auto event, Board member, in charge of all kind of technology and sourcing, said that the goal together was to get to large-scale commercial production before the end of the decade.

So he didn't put a pin on exactly what that meant. But regardless of how you define it, there are still years of work to do together and execution to make that happen. And we just happen to have been on a good pace of good execution. But there's very much work to do together with our cell manufacturing partners like BW PowerCo, our suppliers of components like Murata and Corning, who we're working with and then all of the material and the equipment manufacturers we're working with for kind of generational improvement. So I don't want to underscore that there's still a lot of work to do. It's just that we're at a pretty exciting kind of moment and have been making good progress.

If you have some question, go ahead.

I think Sherry, could you please unmute yourself and the floor is yours.

Thank you Kevin. Thank you, Tim. I actually got a question from client, and he's basically asking what is the progress of partnership with other OEMs than Volkswagen Group?

Excellent. So we did a press release in December. So if you think about just 2025 is a very good year. We upgraded the Volkswagen licensing and collaboration agreement. And we took 2 major OEMs to that precursor stage of what we refer to as a joint development agreement or a joint research agreement.

So the intent behind both is following success, if we can build confidence with the execution of that joint development and joint research scope, we would then have mutual interest to move on to that next step, which would be to try to sign a mutually advantageous collaboration and licensing scope in the same magnitude of Volkswagen.

So you think of we have a relationship with a number of OEMs. There's geographic diversity, there's size diversity. You have pure play, you have kind of combination of EV and combustion engine. And you have Volkswagen Group by far is the most mature between the collaboration licensing, the Board members. We've -- it is important to note that the last 2 quarters, we've collected just under $20 million of collaboration payments. roughly, we've had an average of about $10 million a quarter.

We do note every time that those payments and amounts can be lumpy quarter-to-quarter following the work. But we are in the -- we are kind of taking IP and doing custom work for VW and kind of getting paid for it. So that's a pretty good view in the funnel. There's a number of OEMs in that kind of agreement stage. Then we have 2 in that joint development agreement stage and then we have Volkswagen. And our goal in 2026, the second one I mentioned is to continue to advance those partnerships.

And the second question would be, do you happen to have any cooperation with Gotion, which is a close partner with PowerCo and is based in China?

Nothing publicly announced. We do not have a public partnership with Gotion.

Thanks, Kevin. We've had a -- I think the slide that you have up now about agreements in other sectors is really interesting, and it's been pretty topical during the conference...

Yes.

I guess, one, we've heard a lot about the National Defense Authorization Act and the opportunities that, that might create for unmanned drone or dual-use tech. And then -- okay, maybe we'll just leave it at that question first, and then I have a follow-up.

And then your -- the question specifically around kind of defense...

I'm sorry -- the opportunity for -- is the opportunity in consumer, maybe not just defense, but in general, is the opportunity that...

Yes.

You're looking at in consumer like...

Absolutely. So I would take the agreements where we have them and then the more recent inbound interest would be from defense, aerospace, robotics and AI infrastructure. So if you put all those together, I think that's some of the most exciting nonautomotive opportunity landscape. And then in defense, I think there's resonance with 3 things. You have the energy density advantage, which translates into payload or flight time. You have the charge time, which can keep your drone using it more often in the air than on the ground.

And finally, safety. If you're in a defense application, the majority of drones that are transferred by navy ship or the safety requirement during that transport is incredibly high. As you can imagine, you don't want a fire breaking out on a navy ship. So the QSE-5s combination on those dimensions has been getting inbound interest. If you wanted to watch Siva's recent advanced battery blueprint video, there's actually some nonautomotive application footage, including some drone footage in there.

Cool. On robotics, we had questions about this particularly for untethered robotics. Why is lithium ion not good enough? And what -- is it about weight or volume or operating time, so like maybe power or cycle life? Or what is -- where do you see the -- yes.

Yes, great question. I was told this week at the International Battery Center, IBS, the -- so multiple things. So the cost of batteries is about 1/3 of the cost of the humanoid type robot. So cost is certainly important. Volumetric energy density, you get more useful time out of the humanoid. Hopefully, this is a house-based humanoid that's helping to clean and cook. That would be a wonderful thing. I hope that world comes quickly.

So volumetric energy density would be actually usefulness, charge time again to keep that robot working as you want. And then imagine in a home, of course, the safety feature is another before getting to cost. One question we've got is like, why the people question like the automotive focus, like, hey, it's kind of cyclical back and forth. I would just reiterate that we remain very automotive focused. It's a massive market. I don't think it's going anywhere. I think autonomy in cars actually is going to accelerate the EV penetration.

But most importantly, if we're successful in automotive, it gives you the scale where you can bring that cost point to the other application areas. So that would be that fourth element where can you bring down the cost of solid-state battery that you then put into a humanoid robot. And those humanoid robots for any husbands out there, I'm a little worried that there's a little bit too helpful. And then if they have that ability on my Tesla, you can kind of pop on that -- you can pop on Grok and there's different settings, therapist settings. So just imagining this very helpful humanoid robot going around who also has like excellent listening skills. I do see that as a little worrying for all of us, husbands are going to up our game.

And on the storage side, I think we started our conversation in the prep talking about the Korean, all these battery capacities in the U.S. that are being shifted over to LFP for storage. Is the storage opportunity for QuantumScape like on-site, maybe the BBU where safety and maybe sea rate is really important. Is that where the interest is?

There's increasing interest to be close to or in the rack where you can both combine backup combined with an ability to handle peak power. And you can imagine the benefits there is the real estate is incredibly expensive. So you want volumetric energy density use as little as possible. Power, you don't want to derate that very expensive hardware that you have and safety kind of goes without saying that you want that to be safe. So for that emerging applications, which is being enabled by these AI racks are maybe consuming 20x more power than their predecessors.

So this idea of how do you think about getting power to them cost effectively and efficiently and the rules for different energy storage devices, be it lithium-ion battery or capacitor or combinations of them, that is an area where we've also gotten inbound interest.

Interesting. It would sound like that we would kind of -- with this idea that we would use, we would have the backup and then some ability to handle peak power on site would lead to more duration of batteries or larger batteries on site than what we might have thought.

The other thing from an infrastructure operator is you don't have to build out all your infrastructure at the same time. You don't have to size it for the end facility size for kind of peak power, you could actually build it up gradually as you install infrastructure, which is also nice.

Thanks, Kevin. And then from the investors, I guess, final chance here. If you have a question, please use the raise hand function, we're going to try to wrap up on time like within 3 to 5 minutes. So if there's any question with investors, please use the raise hand function. Give that a second.

Okay. Well, it looks like we don't have any further questions from investors, and we'll give back 2 or 3 minutes. Kevin, thank you for taking time this evening or accommodating the Asia time zone to make this presentation. It was really great. We really appreciate your time. And hopefully, we could hear from you again when there's -- when you have another update on the milestone or a major announcement.

I would welcome that. So thank you again, Tim, for the invite. It's a pleasure to be here, and good morning to everyone, and I wish you a great rest of the day, and we hope to report back with further progress when we talk next.

Thanks, Kevin. Have a great evening.

Thank you, Tim. Thank you, everybody.

Good day, and welcome to QuantumScape's Fourth Quarter and Full Year 2025 Earnings Conference Call. [ Sam Kamara, ] QuantumScape's Senior Director, Investor Relations, you may begin the conference.

Thank you, operator. Good afternoon, and thank you to everyone for joining QuantumScape's Fourth Quarter 2025 Earnings 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 the safe harbor provision for forward-looking statements that is posted on our website as part of our quarterly update. Forward-looking statements generally relate to future events, future technology progress or future financial and operating performance. Our expectations and beliefs regarding these matters may not materialize, actual results and financial periods are subject to risks and uncertainties that could actual results to differ materially from those projected. There are risk factors that may cause actual results to differ materially from the content of our forward-looking statements for the reason that we sight in our shareholder letter from 10-K and other SEC filings, including uncertainties caused by the difficulty in predicting future outcomes.

Joining us today will be QuantumScape CEO, Dr. Siva Sivaram; and our CFO, Kevin Hettrich. With that, I'd like to turn the call over to Siva.

Thank you, Sam. I would like to begin by reviewing our progress over the course of 2025. It was an extraordinary year on all fronts for QS. At the beginning of the year, we set aggressive goals for ourselves [indiscernible] in the Cobra process, ship Cobra-based QSE-5, install equipment for our Eagle Line and expand our commercial engagements. We are proud to report that we succeeded on all 4 key goals.

In June, we announced that our breakthrough Cobra process has been integrated into our cell production baseline. This groundbreaking process enables gigawatt hour scale production and is a catalyst for our capital-light development and licensing business model.

With respect to commercial engagements, in 2025, we expanded our collaboration and licensing agreement with PowerCo, the battery manufacturer of the Volkswagen Group. We also added 2 major global automotive OEMs to our portfolio of customers, announcing new joint development and technology evaluation agreements. Additionally, in 2025, we issued our first customer billing.

In 2025, we added 2 globally renowned ceramic production experts to our QS ecosystems. Murata Manufacturing and Corning. We capped the year with our second annual solid-state battery symposium in Kyoto, where we brought together ecosystem partners, automotive OEM customers and government officials.

2025 also saw milestones in our technology commercialization road map, with Cobra-based QSE-5 cells shipped to the Volkswagen Group. In September, we made headlines as the Ducati V21L race bike powered by QSE-5 cells rode across the stage at IAA Mobility in Munich. This exciting event was the world debut of our solid-state lithium metal battery technology in a real-world electric vehicle.

Finally, over the course of 2025, we installed our pilot cell production line, the Eagle line. On February 4, 2026, we held an inauguration event for the Eagle Line with attendance from automotive OEM customers, technology partners and local and state government officials. Incorporating the innovative Cobra process, the Eagle Line is a suite of equipment materials and highly [indiscernible] processes forming the blueprint for production of QSE-5 technology.

This leads me to our 4 key goals for 2026. Firstly, we will demonstrate scalable production at the Eagle Line. The purpose of the Eagle Line is threefold. First, it will produce QSE-5 cells to support customer sampling and [indiscernible], technology demonstrations and product integration efforts. Second, the Eagle Line will show scalable process steps for production of our battery technology to enable licensing partners to bring our technology to gigawatt hour scale in their own facility. Third, the Eagle line gives us a platform to develop and test further enhancements and refinements at meaningful scale, allowing us to accelerate our advanced development efforts. In 2026, we will demonstrate the scalability of the Eagle line through increasingly efficient sell output.

Secondly, we will advance automotive commercialization. The automotive market remains our core focus. And in 2026, we aim to advance our automotive customers through the stages of our technology development and licensing business model. Working with multiple global auto OEMs, we will use our technology platform to tailor product solutions for our vehicle programs, undertake field testing, enablement customer-specific industrialization strategy.

Thirdly, we will expand into new high-value markets. Our solid-state battery technology offers a step change improvement over conventional lithium-ion technology. Batteries are becoming a disruptive force across the entire economy and we see the opportunity set for advanced energy storage expanding across existing and new applications. In 2026, we aim to seize opportunities where our differentiated solid-state technology can capture significant value.

And finally, we will go beyond QSE-5. As a technology innovation company, we will continue to push the frontier of battery performance as we ramp production of our current QSE-5 platform. In 2026, we are focused on further advancements to meet the ever-growing need for energy storage in existing and emerging applications. And this year, we will announce progress along our technology road map.

To conclude, I'd like to say a word about our strategic outlook. 2025 was a remarkable year and it would not have been possible without the tireless effort of our outstanding employees. Our ambitious goals for 2026 will require continued disciplined execution on the [indiscernible]. Looking at the broader landscape, the world at large faces important challenges around technology and secure supply chains. We view this as a golden opportunity. Our mission to revolutionize [ LNG ] storage has positioned us to offer solutions to these exact [indiscernible].

For industry partners who need better batteries, we seek to offer a future-proof technology platform that delivers better performance across the board and continuously improves over time. For players across the automotive, data center, robotics, aviation and different spaces who are in need of next-generation energy storage to power demanding applications, our technology represents a compelling and unique solution. We believe we have a diverse group of customer and application opportunities, a robust and growing partner ecosystem and a differentiated technology platform that is both continuously improving and capturing the [indiscernible] increased in scale.

Even as we face the many challenges still ahead, we are establishing a strong foundation on which to build the future of energy storage. As a final note, we'd like to express our sincere gratitude to Professor [ Dr. Fritz Prince, ] one of the co-founders of QuantumScape, who is retiring from our Board of Directors after more than 15 years of service. We thank [ Fritz ] for his leadership, guidance and friendship through this remarkable period of QS history.

With that, I'll turn things over to Kevin for a word on our financial outlook.

Thank you, Siva. GAAP operating expenses and GAAP net loss in Q4 were $110.5 million and $100.1 million and for full year 2025 were $472.6 million and $435.1 million, respectively. Adjusted EBITDA loss was $63.3 million in Q4, in line with expectations and for full year 2025 was $252.3 million within guidance. A table reconciling GAAP net loss and adjusted EBITDA is available in the financial statement at the end of this shareholder letter.

For 2026, we expect full year adjusted EBITDA loss to be between $250 million and $275 million as we work towards our goals while continuing to drive greater operational efficiency across the company.

Capital expenditures in the fourth quarter were $12.3 million and for full year 2025 were $36.3 million within guidance. Q4 CapEx primarily supported facilities and equipment purchases for the Eagle Line. For 2026, we expect full year CapEx to be between $40 million and $60 million, the majority of which we plan to invest into the next generation of our technology.

Customer billings for full year 2025 were $19.5 million. As a reminder, customer billings may vary from quarter-to-quarter due to fluctuations in activity as we progress through various phases of [indiscernible] scope of work. Customer billings is a key operational metric meant to give insight into customer activity and future cash flows. The metric is not a substitute for revenue under U.S. GAAP.

During the quarter, we received $19.5 million in cash from 2025 customer billings. As noted on our Q3 call, due to the related party nature U.S. GAAP required this amount to be recorded directly to shareholders' equity once certain requirements were met. We ended 2025 with $970.8 million in liquidity and will remain prudent with our strong balance sheet going forward. As always, we encourage investors to read more on our financial information, business outlook and risk factors in our quarterly and annual SEC filings on our Investor Relations website.

Thanks, Kevin. We will begin today's Q&A portion with a few questions we have received from investors that I believe investors would be interested in.

Siva, can you expand further on why [indiscernible] of the Eagle Line was such a significant milestone? [indiscernible] commercialization pathway? Also how we use this line to demonstrate salable production?

And the Eagle line is an extremely important catalyst for our technology commercialization roles. At the beginning of 2025, we set out the goal of increasing our output of QSE-5 cells. When we were ramping volumes for the Munich IAA show, we had a stable baseline to make cells for the Ducati bike. We decided that the processes were sufficiently mature, and it was time to significantly increase the automation of the line to better match the productivity of the Cobra process.

In the subsequent 10 months, we designed the line, [indiscernible] partners for equipment, built the tools, installed the tools at QS, qualified the processes on the tools and release the equipment to the baseline. This was an incredible effort on the part of the team to get it done in such a short time.

As we said in the later, the Eagle line enables pilot production of cells for sampling and is a platform to develop technologies for future generations. But the most important outcome is to have a blueprint for production. This is what we intend to transfer to our customers so that they can ramp to gigawatt hour scales in their factory. Success on the Eagle line is to have a blueprint for scale, cost, quality and cycle time that a customer can deploy into their manufacturing line. This is about demonstrating the technology to our licensing partners for them to take the next step up in scale.

You've highlighted great interest beyond automotive. How are you thinking about those opportunities while maintaining focus on automotive commercialization.

Automotive customers remain our core focus, still the biggest and most valuable market for batteries. Nothing has changed on that front. The long-term global trend towards electrification is going to continue. And if you think about the autonomous vehicles really starting to become mainstream, those weeks make the economic logic for EVs even more compelling.

We have a cell and a design that is unique. It is capable of being safer, performing better across a wide temperature range, combining high power and high energy density. These characteristics are highly valuable across other applications. For example, in a data center, you have high ambient temperatures, but you absolutely cannot have a fire in racks, it's $1 million GPUs. In a drone, you need better energy density but also extremely high discharge power. In addition, our aspect can work with different [indiscernible] which makes our technology even more versatile. We can offer a differentiated and no compromise solution to these emerging applications, and these markets are growing rapidly. It's a logical step for us to pursue these markets.

Thanks, Siva. Kevin, how [indiscernible] QuantumScape performance in 2025 and how are you thinking about achieving the company's 2025 objective while maintaining operational and capital efficiency.

I characterize 2025 as a strong year for QuantumScape. We executed on our key objectives for the year. And just as importantly, we did so with a high degree of financial discipline. We delivered approximately a 10% year-over-year improvement in adjusted EBITDA loss, narrowing from $285 million to approximately $252 million. That improvement reflects a sustained company-wide focus on cost effectiveness. We may deliver choices that improved our cost structure, for example, advancing value engineering efforts across the Eagle Line as well as optimizing our real estate footprint. These actions allowed us to make meaningful technical progress while improving capital efficiency.

2025 was also an important validation year for our development and licensing model. Under this structure, we said we could generate customer-related cash inflows ahead of earning licensing royalties. During the year, we demonstrated that capability by achieving our first customer billings totaling $19.5 million.

Finally, we exited 2025 with $970.8 million of liquidity, leaving us with a strong balance sheet for this next phase of execution. Looking ahead to 2026, we believe our plan is well aligned to the goals we've laid out. And importantly, it allows us to advance those objectives while we further improve efficiency and monetize the platform we've built.

Regarding efficiency, our plan is to continue to systematically, methodically, and iteratively drive efficiency gains across the organization via the activities we'd expect, ongoing value engineering, higher equipment uptime and throughput and further improvements in yield and reliability. We're well along in deploying machine learning and AI tools to accelerate development cycles and improve engineering productivity.

On monetization, we expect customer billings in 2026 to increase relative to 2025 levels as we deepen and expand customer engagements. .

Okay. Thanks so much, Kevin. We are now ready to begin the live portion of today's call. Operator, please open up the line for questions.

[Operator Instructions] One moment for our first question. It comes from Mark Shooter with William Blair.

And congrats on commissioning the Eagle One. And my question here is with this new manufacturing technology, I know there's a lot of improvement in throughput and yield, but I'm wondering if there's an ability to increase the surface area of [indiscernible] separator and therefore, maybe increase the cell size. Is this possible? Or is this on your technology road map?

Mark, thank you. Thanks for the question. The Eagle Line clearly enables us to do all the things you just said, improving yield, improving uptime, improving operational efficiency, improving materials utilization so that we can show our customers the efficiency with which we can make sense.

Equally importantly, the Eagle line and the Cobra line are set up to be adaptable to making the line useful for every customer for their specific needs. Our aim is to use the Eagle line as the backbone so that when we industrialize for specific customers for specific needs, we can have the line to make that happen. That's exactly what we are using as this transfer platform. So the Eagle Line access the scalable blueprint for us to take a core technology platform and adapt it to every one of our customers' specific needs.

Yes. Mark, as you mentioned, those are probably the 3 vectors we'd expect our automotive customers to work with, either it be choice of cathode, capacities and cell format. Our colo process is capable of those and as is the Eagle line, and that exactly fits into that first of our 2 phases of our business model working together with customers to customize our technology platform to their product solutions, earning the first line of cash flow and longer term, setting up that much larger licensing opportunity.

I appreciate the color there. Just as a follow-up, maybe put a finer point. The reason why I asked about the surface area increase maybe larger cells is what I thought I heard from the PowerCo arrangement is that the QuantumScape cells need to fit into the unified cell architecture. And I'm wondering if that can be done with the current size, the QSE-5? Or is that a larger cell you need to develop? .

Yes. As you just said, the QSE-5 cell is a certain aspect ratio, providing us with about 5.6 power and about 21-watt hour cell. The UFC is a larger form factor. And every customer has their specific need for what they need for their application. And fully knowing that, we use this as the adaptable baseline. The Eagle line will show what the platform is from which we can adapt it to make it bigger, smaller, whatever we need to. And that's the whole point of establishing one stable baseline from which we can build for different customers.

Our next question comes from Winnie Dong with Deutsche Bank.

In your prepared remarks, you alluded to various verticals, including data centers and robotics, aviation as potential applications outside of automotive. And I think in the past, consumer electronics was also a potential application as well.

I was wondering if you can help us understand is there 1 vertical where your technology is more suitable than the other ones? For instance, I'm just trying to understand in this -- example, stationary storage. A lot of companies that are picking up that they were trying to use LSP. So just curious like why is lithium [indiscernible] even better for some of these applications?

Yes. So let me start out and Kevin has some strong views on the subject that he'll continue on. Clearly, the architecture that we have developed with the ceramic separator, provides you what we call a no compromise solution, meaning concurrently, at the same time, we can deliver high energy density, high power density in both charge and discharge, better safety capability, cycle life. And because we eliminate the anode, we have better and because the formation is so short, we can deliver a better cost profile.

Each of these markets that we just talked about have unique needs. For example, as you ask the consumer electronics product is very big on volumetric energy density. We are trying to make sure that we size the opportunity, work with customers, move rapidly so that we can take our no-compromise cells and fit it into the appropriate platform, appropriate form factor and quickly get to market. That's the idea behind.

And as you would expect, the automotive market still is the larger market, and we remain focused on it. And logically, the automotive market is also takes the longest time to develop, qualify and deploy into larger fleets. These are just facts of the marketplace that we work with, but the cell itself is so useful across different markets that we do think it's logical for us to take that lead.

Yes. As Siva mentioned, we're starting from a good place with that no-compromise battery, the advantage is laid out, there's -- we see opportunities over the formants of [indiscernible] across the broad set of energy storage applications. I believe you listed several potential applications. Consumer electronics tends to really get excited about the volumetric energy density advantage. AI data center safety, drones and anything that flies loves the gravimetric savings and the power and the grid, at least for the major load shifting application values cost per round trip cycle.

So we believe we can offer compelling solutions in all these spaces. And as a management team, it's our job, how many of these do we do [indiscernible] and in what order do we sequence them to both delight our customers and to optimize returns for our shareholders. And everything we just discussed about, we're intending in goal #3 that we laid out in our letter today, expand into high-value markets.

And Winnie, the whole thing is enabled by the Eagle line. The Eagle line allows us the flexibility of going and trying without because we have the ability to make more samples for more customers. And that is what makes this whole thing possible. .

Got it. My second question is on the year's EBITDA guidance. I was wondering if you can help us flesh it out in terms of the OpEx and also in the context of some of the billable help that you can get from your partner as a result of partnership.

And then -- Winnie, if you help me with the color around which aspect and then you were asking about color on billings, is that a correct rephrasing of your question?

Yes. Essentially, you're guiding to -- you have the year's EBITDA guidance. I'm just curious in the context of existing partnership. I think in the past, you've mentioned getting operational help from some of these partners. Is it being considered within the outlook? And -- yes.

Yes. So that's a great question. So to answer what you just mentioned first. So yes, our EBITDA guidance is inclusive of help, either from OEM partners or ecosystem partners. That's all baked in. And by the way, there is significant resource being put in by all of those 3.

In terms of just some color, the EBITDA guidance is relatively flat year-over-year, but I would point out that the team is seeking to take on a lot more with expanding and deepening the automotive partnerships as well as expanding into new high-volume markets. There's all sorts of activities behind that as well as pushing the frontier of battery development. So our goal is to deliver much more with the same resource base, improving efficiency to to shareholders.

Winnie, just to be clear, for this year, given we've announced $19.5 million of billings and cash received, and that, as he has pointed us gone directly into equity, and that is not part of the EBITDA loss that we just announced. .

Correct. And as I mentioned in the comments, please expect that to be lumpy quarter-to-quarter as we do this type of agreed development work with customers and ecosystem partners as well our desire to improve on 2026 versus 2025.

Our next question comes from the line of Joseph Spak with UBS.

First question is just if I compare the slide deck you put out today versus prior, it looks like that conditional cash inflows is now $150 million. Last time, it was $261 million. Can you detail what changed there?

If you -- just to rephrase or maybe to clarify, when we expanded the VW, the development and collaboration and licensing agreement with Volkswagen last summer, there's an opportunity to earn up to $131 million worth of those development payments. Is that what you're referring to, Joe?

Yes. Like if you put like on Slide 16, you have on the slide detailing your relationship with PowerCo is $150 million plus of conditional cash inflows. If I look at the last quarter slide, that $150 million was $261 million.

Let me pull that up and revert with you in a few minutes. I don't have that in front of me. I will get with you on that.

Okay. The next question then just obviously, PowerCo is a deep and important partner here. There had been some reports that Volkswagen sort of slashed the funding there. Just curious if that sort of you felt at all that sort of impacted your business or your work with them or if it's even increased some of your urgency to diversify to other customers?

Yes. So Joe, our work with PowerCo is continuing on unchanged. Their commitment to us is very, very good. Our relationship with them and the focus with which we are working together is as good as ever. We are both working towards a set of agreed upon scope of work that has not changed. And we are continuing to build them the way we have agreed in that $131 million deal that Kevin just talked about.

So in July of last year, we agreed on a scope of work. And our partnership is as strong as ever. And the work itself is lumpy as in the way it is planned in up and down, but we are doing very well with respect to Volkswagen. That does not mean we are not working with other customers, as we announced in the letter, we have added 2 new large global auto OEMs to our portfolio with whom we are working with. And we have also announced additional technology development and technology evaluation agreements with them together. So this is in a good place. The customer interest has been very strong. And the Volkswagen and PowerCo relationship still remains very, very strong.

Okay. Last question for me, and you touched on some of this, and I just sort of want to better understand how you're thinking about it because you talked about new end markets, opportunities in storage robotics, exciting stuff. But if I look at what you've done with the auto business, you've you've effectively, right, left the commercialization industrial relation to Powerco and other partners. So as you move to these other end markets, like how is it -- if you're not making a sort of a standard cell -- like and I understand Eagle line sort of helps you sort of do different form factors or different cells. But like aren't you going to need to sort of reach out individually to help sort of scale these different form factors for these opportunities?

Just -- it just seems maybe a little bit more difficult as you go to some of these other end markets where there might be some more bespoke use cases versus the old strategy, which was doing yourself, but maybe I misunderstand that...

Very perceptive question. I'm glad you asked. The licensing and capital-light business model is not a single flavor. There are a lot of different ways of doing the same thing, have made rights, having contract manufacturing, having our partners manufactured for others, having customer provided manufacturing abilities there are many different ways of doing it. As long as we are not spending the capital to build it, we can do this very well. And these markets are fully amenable to these business models.

So we are exploring those with our new customers. I'm not saying that we rule anything out, but our preference has always been to a licensed and capital-light business model. So I'm glad you asked this question, even in these markets, such different variations on this came on very possible.

We did -- I did have a chance to get the slide you referenced. The prior reference to $260 million or $261 million is when you sum both parts of the of the economics of Volkswagen together with the $130 million prepaid and the up to $131 million of development payments. That's the former number you referenced.

In this last letter, as footnoted, what we're doing is we're only -- we're having more of a backward-looking view where we're only counting the billings to date plus the $130 million. So it's a different cut at the same 2 numbers. Nothing changed contractually.

Okay. So nothing changed with that other -- with that delta, that sort of more potentially to come.

It's looking at the bird in the hand relative to billings as opposed to the bird in the bush would be up to.

Our next question comes from Mark Delaney with Goldman Sachs.

You have [ Aman ] on for Mark. Maybe kind of starting on your goal for the Eagle line and scaling that and congrats on getting that installed. Can you maybe help provide some context for where some of the key metrics for that line are today, like yields and production time and things like that and how you see that scaling over the course of the year and what's needed to then exiting the year get to commercial transfer to your licensing partners.

Yes. [ Aman, ] thank you for the question. So last year, we had a manual line with which we were producing cells for obligations such as the IAA Munich demonstration and the Ducati bike. We developed a very stable baseline, and we just said that it was a good time to convert it to be a much more highly automated line so that we can match the output of the highly productive Cobra line to the cell making line.

And so in the 10 months since -- since March of last year, we have literally conceived the line, designed it, find the bill partners for the equipment broad build the equipment and brought them over here, install them, qualified them, develop the process, transfer the process and then convert it into the base line, and we are running it. And that's what we inaugurated last week this time.

Now this is a manufacturing prototype pilot line. And so this is what we are using to convince and work with our partners who are going to be working with us hand in glove watching how this is done. So all of the metrics that we normally use in the pilot production facilities such as uptime, mean time between failure, mean time to us is mean time to repair, yields, reliability, quality, cycle time, cost, all of these kinds of metrics have to be made efficient so that our customers come and work with us and say, okay, now I'm ready to go take this line and convert it to our need in my own factory to scalability.

So these are the things that you -- what you just asked is what we will be very, very, very closely monitoring as we ramp it up. We are in a good place, and we'll continue to work with our customers, and we need to show this to our customers who are here with us watching this. And when we inaugurated the line here, the customers are actually here with us as we got to start it.

And just 1 other -- some other dots to connect. The Eagle line is certainly called out in our first corporate growth for 2026, demonstrate scale of progression with Eagle line. As Siva was mentioning, it's central to the other 3. Without that type of prototypes and sampling and demo volume, that is the currency with which we can advance automotive commercialization, new and existing as well as get us the currency to expand into new high-value markets. And it also gives us other parts for internal use to do development on to support that beyond QSE-5 road map. So that Eagle line we demonstrated last week is really important to set up a successful 2026.

Now having said all that, [ Aman, ] this is the unsexy part of the work. This will be systematic methodical, iterative improvement of every 1 of those so that the customers see and work with us to see the rate of progress on all of them. So this is not new things. I have done this many times in the past, and the employees know what it is then that we need to do here at QS. So we'll get that going. .

I appreciate the color there. And maybe tying that to my follow-up here. Kevin, you talked about $40 million to $60 million of CapEx. Can you maybe help dimension that across some of the spending you've kind of outlined in your goals, whether that's for the Eagle line and scaling that versus expanding some of the QSE-5 technology and potential incremental spend related to expanding to some of these other end markets? And how should we think about that level than being sustained beyond '26 in terms of further continuing to explore those opportunities.

It's a good question, [ Aman. ] The bulk of the spend goes towards the fourth goal of going beyond the QS and the bulk of the CapEx spend from $40 million to $60 million, as you referenced. There is CapEx in the other categories, but with the maturity of the QSE-5 platform, for example, in the case of expanding into new high-value markets or doing custom development for OEMs, it's more incremental on those of cathode or dimensions or form factor. That's more of an incremental spend as opposed to a core development spend.

As a technology licensing company, it is our core job to develop and pilot and transfer high-performance battery technology to our customers and partners. Capital is required to push that frontier, and this is the type of magnitude we think investors should expect going forward for that steady-state advanced runway development. And I would also like to draw a contrast this -- has to spend under a technology licensing model with that of a full-blown manufacturing company which requires billions of dollars of investment for gigawatt hour scale done before years before that factor even comes online. So we think that that our choice of business model is in the best interest of shareholders.

And maybe just on that point to quickly. Can you kind of dimension what are the goals you're trying to hit for the QSE-5, like beyond the QSE-5 platform that you're spending on? I apologize if you've discussed it before. I don't have it off the top of my head.

Now [ Aman, ] last year, we put out our blueprint on how we move forward as a technology company. The QSE-5 is our first well viable product. Clearly, as we move up the S curve rapidly, we need to make the performance metrics better on every aspect of it and keep moving this up -- and every 18 to 24 months, we will be coming up with new upgrades on this that we need to come and show you all for our customers and shareholders where we are spending the money to move the technology frontier forward. That's where this is headed from the QSE-5 moving up.

Our next question comes from the line of Ben Kallo with Baird.

It was great to see you last week. One thing I noticed when I was visiting is your supply partners there. I just want to get a sense of how they're thinking about your future potential customers outside of Volkswagen. And I know you guys have done a lot of work with the supply chain. So if you could talk about that and just how that helps you with new potential customers.

Ben, great to see you last week. Thank you for being here. You're 100% correct. The QS ecosystem is very important to us. this level of technology change cannot be done by a single company. It requires a whole ecosystem to move this forward, whether it be in capital equipment, whether it be in advanced materials, whether it be in things like software and AI systems, there are places where we need help. Murata and Corning being able to take over and run the manufacturing for the ceramic separator is a big step forward for last year.

In our solid-state symposium that we hosted in Kyoto, we brought together similarly our tool vendors from across the world to be there. And you saw some of these suppliers here in QS who helped us build the Eagle line. These folks are very excited about the possibility of us expanding further into other form factors into other markets into new customers, both in the automotive and nonautomotive spaces. We are counting on their support, and we will be expanding the ecosystem continuously to make sure that we can bring this along. And again, Kevin is very passionate about our secure supply chain and let him talk about that.

Yes. Siva mentioned in the ecosystem we're building where there's customers, there's -- there are some manufacturers in suppliers of materials and equipment. As you add more activity to it, it makes the whole stronger, certainly from the view of so manufacturer or a supplier of equipment or materials more additional end markets and expanding and deepening automotive relationships is a good place to sell their goods and services into. But then from the flip side, if you're a if you're a QSE-5 customer or manufacture the cells having a ready supply chain with the world's leading examples in their respective slots only strengthens the value proposition as well.

So we're very excited with the progress that we made in 2025, and our goal is to continue that moving forward into 2026.

And then equally important is the people you did not see in that group. You did not see a graphite supplier. You did not see an anode supplier. So securing the supply chain is as much for us about making sure that the suppliers that we need are there as much as making sure that we are not unduly dependent on any 1 material from any 1 place. So that also helps us in securing our supply.

We see OEMs retrenching or retreating or however you want to characterize it. and there's excess cell capacity out there. I just wonder how that impacts your discussions with new potential customers. Yes. I'll leave it there.

Ben, thank you. Yes. So clearly, there is turbulence in the marketplace, at least in the U.S. However, the folks, especially at the senior levels in these companies as we talked to consistently are more optimistic about the long term. We see the fact that electrification as a longer-term indictor is still the right way to do it. The more we see about, for example, self-driving vehicles, navigation, [indiscernible] start to see there are other vectors that are forcing the EV conversion. So every customer we talk to is upbeat about 2 things, application, but in particular, solid-state batteries. Both are things that they come to talk to us. And we see since -- that excitement with our partners.

And we hope you can see that some of these themes were certainly playing out in 2025. And against that backdrop, we expanded the PowerCo collaboration area, we signed 2 new joint development agreements. We added a new technology evaluation agreement. We think that is consistent with the excitement that Siva mentioned. And while you use the word retrenchment, the automotive industry still is growing. It still is very much a growth sector. So the short, medium and long-term prospects we think are still on growth.

Our last question comes from [indiscernible] with HSBC.

I just have 1 question because my reasons were already answered. But I wanted to know if you have any KPIs that you can share with us on how you will measure the goals that you set for 2026.

It was great to see you last week. Thank you. Thank you for being here. Clearly, the 4 goals that we have outlined are all very quantitative for us inside the company. Whether it is about the Eagle line, demonstrating the efficiency and scaling of the Eagle line for the purposes we just talked about, whether it is about making sure that we expand -- advance our partnerships with automotive markets, whether it is to go beyond the QSE-5 and expand into high-value markets.

Each of those is a extremely important vector for the company to continue to progress on. We will continue to update you as we progress on each of those, and you will see this progress as we give you update. And our job is to make sure that just like we did in last year, tell you what we are going to do and then do as we say and on time and give you get those updates.

Okay. That makes a lot of sense. And just 1 last thing. I know you mentioned that your focus is to automotive. But when you're when you eventually start looking at earlier applications, does the Eagle line required major adjustments depending on the segment that you cater to? And will these imply a higher CapEx also like for the customers? You said that the blueprint is easily adjustable to each customer's needs, but does imply that they need to invest more to adjust whatever they want to create depending on the market or segment that the customer is in?

Yes. It's an interesting dilemma [indiscernible]. This is the reason we chose the licensing business model. In the battery business, every customer wants their unique form factor. If we try to set up a line for everyone of them, it becomes untenable. What we have done is a foundational technology, a scalable blueprint that we can do it. But any change that we do for any specific customer.

Clearly, we expect that as part of the earlier payment, we would be working with them on financial arrangements to make sure it is done so that we take capital lightly. And when we take our technology road map and show it to our customers, we clearly set the expectation that we intend to be a capital-light licensing company.

Ladies and gentlemen, and this concludes our Q&A session for today, and I will pass it back to Siva Sivaram, for closing comments.

Thank you, operator. Finally, today, I want to recognize the entire QuantumScape team for their execution in Q4 and throughout 2025, and I want to thank our shareholders for their continued support. We look forward to updating you on our progress in the months ahead. Thank you. .

This concludes our conference. Thank you all for participating, and you may now disconnect.

Good morning, everyone. Thanks for joining us. So I'm Ben Kallo. I cover sustainable energy and mobility. Very happy to have QuantumScape, the CFO, Kevin Hettrich, here. I think we're going to do a fireside chat. This is what, your fifth Baird conference [indiscernible] conference.

Thank you for inviting us. You all do a fantastic conference here in Chicago.

It seems like 5 years ago, commercialization was so far away and it's creeping up on us.

Yes. That's right.

So maybe since we have an audience with different backgrounds on QuantumScape, if we could just spend a minute just kind of giving an overview of the company, how it was started, when it went public and what you guys do.

Well, good morning, and thank you again for having us. QuantumScape is a company working to give the world significantly better batteries. Things that you'd care about, would be energy density in the world of automotive, that would be range, power, which would be charge time, life, safety and cost. In order to do things and to give a significant improvement to all those dimensions at the same time, we believe you need a different chemistry. And specifically, QuantumScape is the world leader in solid-state lithium metal chemistry that targets advantages on all 5 of those things. It's been a very good year.

About a year ago, we announced that we are shipping prototypes of our first product, the QSE-5, the specs on that cell across power, energy density and safety, which is unmet in the marketplace or 844 watt hours per liter, 301 watt hours per kilogram, and it charges in about 12.2 minutes from 10% to 80%. And then just 2 months ago, cells -- those cells powered a Ducati race bike across the stage in the Munich Auto Show. It was 1 of 2 showcase exhibits featured by VW during the week. That was a very emotional moment for the company to have gone from -- can -- do materials even exist to make the chemistry work to having announced our first product to then have powering a vehicle.

That was done with Ducati, Audi did the pack and then together with our partners, VW PowerCo, we provided the cells. So there's a lot of momentum behind the company in the last period.

That's great. You touched on it, but could you just maybe give a little bit of contrast versus traditional lithium-ion cells.

Yes. So acknowledging it's in the morning for you, I'll keep the chemistry brief. Batteries have 2 electrodes. They have an anode and they have a cathode, the separator in between. How they work is when you charge them, you move the lithium ions from the bottom, the cathode into the anode. You discharge them and you want the energy back out, you move them back down. Why it's called lithium-ion device is in the anode that I think on the left, the cells in a charge form store them as ions. That's a mixture of graphite and silicon. Think of it kind of like a little hotel or a host for those lithium ions.

What we're working on is the schematic on the right, where as manufactured, there is no anode. There is no host material. And when you charge it, you end up plating pure lithium metal. And you can see the benefits there. By not buying or making anodes, that's a cost saving. By not having the material there, that's volume and a weight saving. If you're a little ion that needs to go from one side of the device to the other, we just cut the distance in half. That's where the charge advantage comes from. Life has improved because one of the major sources of life loss is in that anode structure with which we just eliminated. And safety, the anode -- the separator that we replace and the anode is also infused with a flammable liquid.

We eliminate all those things and replace them with either nothing in the case of the anode or our ceramic part, which is an inorganic material and doesn't burn. So that's where the safety benefit comes from. It's simple and a schematic. The engineering is devilishly hard. It required developing material as well as how it's made. Just for some little fun details, that material is less than the thickness of a human hair. Almost nothing on the periodic table is stable to lithium metal. So we had to develop a material that was stable to it. And by the way, you're passing a metal through a ceramic sheet, a solid through another solid.

So it's pretty -- the engineering there is pretty fantastic. And because of the realities of the automotive market, you need to work with earth-abundant materials that can hit the cost point, and you're talking about football fields and football fields and football fields worth of this material given the size of the end markets that we're talking about.

I want to get to some of the supply agreements too in a bit. But maybe you could talk about just because you had -- I think you touched on it, you had to invent the equipment. So could you just talk us through like the Cobra, Raptor or Eagle...

Yes. We have a soft spot for fast animals. So we've used animals to describe some of the different production technologies. So taking maybe one bigger step back, we are a technology licensing company. Our job is to develop better batteries, take it to a pilot line level of scale to demonstrate how it's made and then to transfer it to our partners who would then take it the rest of the distance. Our first such licensing agreement was with VW PowerCo, VW Group and PowerCo is their battery unit. So to your question, Ben, you're asking about some of the different production line improvements.

As I alluded to in the opening, it's not enough to have the world's most compelling performance in terms of power, energy density and safety. We also need to be able to make it cost effectively. So that required an innovation in terms of how you make ceramics. So we started across the life of the company, used to make it in terms of batches. That's nice for R&D, not suitable for manufacturing, shifted to how the industry does continuous processing of ceramics and then decided, while you could scale that up, it's actually lower risk to continue to innovate on that process. And the vector that we pushed on was speed. So by taking existing equipment, we worked with the manufacturer to -- without changing the equipment itself and just -- not significantly, small changes to the equipment, we baselined our Raptor process last year.

That was an 8x improvement over the heat treatment speeds with which the industry does. And with that as a positive signal that, that was a vector we could work on, we did some proof of concepts in parallel to and even more to kind of fully use that speed lever, we did need to change the equipment itself, work with another manufacturer to do that. That led to the Cobra process, which is a 25x improvement over Raptor. You put those 2 together, that's a 200x improvement over that industry equipment.

Many -- we've been talking with many of the world's leading ceramicists who did not think that Cobra process was possible. So that is both important for our scalability and it was also a really exciting thing that led to some partnerships with some of the world's leading ceramics companies in Murata and Corning, both the opportunity to participate in making our separators and supplying them to cell manufacturers like PowerCo is interesting as well as that innovation in Cobra is very interesting to them for advancing the IP within the ceramics industry.

I want to get to this, but first, because you mentioned it, it's important, the licensing part of it. Can we start with Volkswagen and the relationship? And then I don't know if the correct characterization is a pivot to licensing, but how you made that decision to become a licensing company?

So if you'd back up to 2018, we had formed a joint venture with Volkswagen. Volkswagen said, "Wow, we've never seen solid-state lithium metal chemistry work at automotive rates of power. This is a real breakthrough. We very much would love to put this in our vehicles and have a differentiated powertrain." Since that point, VW went further upstream and invested in a wholly owned battery company called PowerCo. Given they went that direction and said, "Hey, we've put factory steel in the ground. We would love to give -- why don't we -- why don't you let us spend the money? We'll help you industrialize the technology. Instead of as JV partners, we'll literally do it as PowerCo."

And the benefits for investors in QuantumScape is that helps us achieve a true capital-light approach. We focus on innovation. We provide leading kind of chemistries and products. We take them to a pilot line scale from which we can teach partners. And then the VWs and PowerCos of the world would then take it the rest of the journey from there. There are 3 inflows into the company as a licensing company. The first would be payments from our customers during that collaboration phase where they're doing custom development or they're kind of purchasing, increasing maturities of demonstrations on that development. The second would be licensing where our technology is being used in cells produced out of their factories.

And then the third would be value sharing from the ecosystem itself. So last summer, we announced our collaboration licensing deal with the VW Group. It created a joint team in San Jose to bring up that pilot line, which is making nice progress. It was an 80 gigawatt hour license. That's about 1 million vehicles, which on successful transfer, they would produce out of their factories. It's a nonexclusive license. We see this as a template that we'd like to recreate with others. And it was upgraded this most recent summer to include up to $131 million of payments by the VW Group to us as we're doing that development work. And those are kind of the main pieces. There's a royalty prepayment for us to earn of $130 million.

If you sum those 2 numbers together, there's up to $261 million to earn in advance of that license being struck. And in fact, with that license being struck. So that's very significant economics upfront. And the licensing, by the way, is by far the larger economic opportunity. So VW PowerCo is kind of our anchor tenant to the ecosystem. And then because we have a capital-light approach, we wanted to work with the world's leading ceramic companies to create a mutually beneficial business case by which they could supply separators and provide it to those cell manufacturers.

On the expansion of PowerCo, could you just talk about the significance of that? And I think there is some nuance there, too, where maybe it allows you to sell outside of automotive.

That's right. So as part of the expanded deal this summer, which was just a few months before that IAA Automotive Show, their total license went from 80 to 85 gigawatt hours, which is an expansion. What's interesting about that last 5 gigawatt hours is they have the ability to sell it beyond the Volkswagen Group, so that could go elsewhere in automotive. They also have the ability to sell that outside of automotive applications. So for PowerCo, it gives them some strategic flexibility in terms of where to take this solid-state lithium metal technology.

And then just there's other companies like Rivian I cover has a Volkswagen partnership. Could you just talk to Volkswagen's -- we've seen a lot of U.S. OEMs retrenching away from batteries, just their commitment? And then maybe just like when you guys have talked about commercialization happening?

Yes. Two great questions. So in the news, there's a lot of malaise and handwringing about the EV space. And while projections have come down incrementally, I think it is informative to look at the numbers. There's about 1.6 terawatt hours of kind of mobility tied energy storage today. That's set to grow -- that's forecast to grow about 4x to just under 6 terawatt hours globally. If you eliminate China, it's actually a more rapid growth. It goes from about 0.4 terawatt hours to something like 2.4 terawatt hours. So it's about 6x growth.

So automotive alone is a -- remains an explosively growing space that is already massive and only becoming more massive. The OEMs tend to look across product cycles. And what we found in our conversations is that in times where they're trying to elbow each other out for a little more market share maybe, they want a differentiated powertrain, especially in their performance segment. In the event that it's growing like crazy, they still want that differentiation. In the last quarter or so or 2 quarters or so, you can see that momentum.

We had that expanded deal with VW PowerCo, which features the up to $131 million of payments. We upgraded one of our other kind of global OEMs from a technology evaluation agreement to a joint development agreement, which has payments tied to it for custom development. And then we saw -- we said on the last earnings call, we have a top 10 global OEM who we had not engaged with, we're now in very active engagement with. So we've, through this, have seen continued kind of urgency and excitement over our technology.

On the new customer agreements outside of VW or new prospects, is there a wait-and-see approach for what PowerCo does? Or people are going to move -- they've already seen it?

They can -- under, of course, NDA and with the right relationships, they can come and see it at QuantumScape and receive samples of the cells. Any individual OEM represents such a massive economic opportunity like with VW, that's 1 million vehicles, and those are very large kind of factories at full scale. We'd have the ability to work with a handful simultaneously, and it's our intent to take this VW type deal and to get into a cadence of striking these. First on the QSE-5 generation of technology and then ultimately, as we progress on our road map as a technology licensing company is to just have a platform, license, license, license, platform, license, license, license, and that's what success looks like.

Again, just for our benefit, could you just talk about A sample, B sample? And then you guys shipped B samples, a big milestone. And just maybe talk through the significance of that.

So in automotive qualification, there are 3 phases. A is show off most of the benefits of your technology. It doesn't really matter how it's made. B means -- in fact, the final B is you've got all the performance of the product and it's being made on production-intent processes, but with smaller equipment. That's a really important milestone because you're able to hold and touch and test the product. It's typically in this phase where you do modules and vehicle testing like you saw with Ducati.

And it's off of this that a cell supplier would get a purchase order. And then the C sample is replicating the B sample, but just off of the actual factory in the actual -- without changing the processes, it's just larger scale equipment. As a technology licensing partner, you can think of our pilot line as producing B sample type cells. It's ultimately our partners' job or the group taking the license that would take it through C sample and into full production.

Let's move to the ecosystem now because I think it's important, and I don't necessarily know if I even fully understand how big it is. So you have Corning and Murata. Could you talk about each of them and what those relationships mean and what they provide to you guys?

In our technology licensing business model, we -- it's not our core strength to build factories or to operate them. From an investor point of view, you have to tie up capital early and you get returns once the factory kind of comes to scale. We think it's a better return on shareholder capital to innovate and to empower others who are specialized in that to use their balance sheets and their expertise to do that. So if you play that out, you have VW PowerCo taking the OEM and cell manufacturer relationships over time, we'd like to add to both columns. And we've given investors a pipeline into our progress advancing those customer relationships along.

But then important is, well, who makes your core part, this ceramic separator. Murata is the #1 precision ceramics manufacturer on the planet. Corning is probably not that far behind. Corning is famous in both glass and ceramics. If you could choose 2 partners to have in the world to make your component, it's probably those 2. What we are excited about, and we hope investors are excited about, too, is that itself, the interest in that manufacturing from leading experts in ceramics should be a vote of confidence from a new direction from those who like ceramics and who are experts in ceramics. But for us, from an ecosystem point of view, the goal would be everyone finds a very nice business case. We provide the innovation. We train off of the pilot line.

And our investors, we get the collaboration payments, license payments and then value sharing from ecosystem partners. From the cell manufacturing, they're excellent at making electrodes and assembling cells, and they today buy the separators. They can maintain that same expertise, and they have a global partner from whom they're used to sourcing automotive quality and quantities in Murata and Corning. And then the fact that you have a license and you've got a turnkey supply chain only makes the value proposition to move forward more compelling.

And then from a Murata and Corning point of view, without having done any R&D, they have -- there's a product that uses a core ceramic thing that they're good at, that they're being given the intellectual property with a captive kind of customer on the other side.

And their balance sheet and know-how and expertise, we think, actually helps come down the cost curve over time. So that's the goals that everyone finds a really nice economic opportunity. And it's all set up because the differentiation of the cell is so strong that it enables nice business cases all the way around.

Do they have to build like new factories capacity for this? How does that work?

Because of the sheer volumes here, you'd end up needing to supply capacity -- like the -- if you've toured like the Panasonic's Gigafactory within -- in Nevada that supplies Tesla, for example, like those are -- like that's a 35 gigawatt -- it's a huge space, and we're talking about 2 of those in VW's first license. That factory doesn't produce separators, but that's a pretty core partner. You have -- It's a massive industrial footprint. So you should assume that, that will be mainly new equipment. They would -- both partners likely would build out within existing factory shells that they have, but you could assume these would be dedicated lines for this purpose.

Talking about existing footprints like the Gigafactory, one question we get quite often is does a cell manufacturer have to rip and replace equipment? And how does it work switching to you?

You could. The cathode is the -- you can think of it as being the same. The cell assembly in our case would be stacked. There are some manufacturers like LG who do kind of a combo wind and stack. The cell test would be the same. What's different is we have no anodes. So that all that equipment that kind of coats processes, maybe you could reuse for the cathode.

So some parts, very clearly, yes. Other parts, it depends is the -- would be the answer. But because the space is growing and in that type of forecast, if the world is going to 5.6 terawatt hours in the next 10 years, most of the factories we need haven't yet been built. So I would think the more normal use case would be new lines, but you could utilize portions of existing equipment.

And OEMs versus cell or battery manufacturers, OEMs are more of a target for you?

Well, but with needing the latter in order to ultimately get them what they want. So with VW PowerCo, it's clean and then you have kind of one entity controls both to work with other manufacturers -- with other OEMs who aren't as close to a cell manufacturing partner, we would need to work with a cell manufacturing partner and ultimately get our cells into their cars.

When you talked about moving from the B sample on smaller equipment to larger equipment, could you -- if it's possible to kind of frame any kind of technology risk to that level?

So a perfect question, and we can bring in another animal name, Eagle Line. So that's the name of the line QuantumScape and PowerCo are bringing up, which takes this innovation in ceramics processing that we talked about that Cobra launch is 200x the speed of kind of the industry standard and upgrades all of the equipment downstream of it just to keep up very, very high levels of automation and kind of the bleeding edge of our process capability. That is real work. You're landing a number of individual tools that are taking in improvements, which we've identified, but it takes time ultimately to realize them, to do tweaks, to kind of get volumes and yields up.

And it's not necessarily sexy work in that it's like, behold the world's first solid-state lithium metal cell that is like -- it's more like, okay, I'm here to improve like uptime. Like what are my major sources of uptime loss? [indiscernible] them out. What's the big one? What's the root cause? Let me eliminate it, rinse and repeat. You've heard Siva talk about systematic, methodical and iterative. It's about being robust in terms of using data to analyze the problem. Methodical, meaning root cause it and it doesn't ever occur again. And then iterative, rinse and repeat. And that's the wheel, the engineering wheel by which you take kind of costs down.

We'll do that on the Eagle Line. To a certain point, we'll all learn from it, and then we'll empower VW PowerCo off of those learnings, help them design the first scale equipment in one of those factories. And even then, the job won't be done. It will then shift into support mode and will continue. And meanwhile, our teams are in the background of the next generation of cell technology, bring it to the pilot line, and that work will never stop.

You can ask questions by raising your hand or [email protected]. Just other applications, I know you guys get asked that a lot. You have your hands full, but outside of automotive, where would be the best fit?

We do -- if you -- because the cells have -- we're targeting improvements on all of the dimensions that you'd care about in energy storage, there's very broad potential places you can take them. Some of the areas outside of automotive where we're getting a lot of inbound pings. One is into this emerging data centers, AI kind of infrastructure boom where there are use cases in terms of distributed energy storage on the racks. A second would be anything that flies for the obvious reason, you want the weight and you want the safety savings. And consumer electronics, which really prices the volume. Those are probably 3 of the areas where we get some of the most pings.

Go ahead, [ Russ ].

How is this technology being received by Tesla and BYD? And just how far are we -- is this theoretical win on [indiscernible]?

So with -- you were asking about Tesla and BYD in particular. So we think of Tesla as being in the sea of potential partners. So they would be a very desirable partner for us. We don't comment on any specific discussion. BYD, I would say BYD and CATL are the world leaders in the lithium-ion space. The Chinese have an incredibly dominant market share, predominantly on lithium-ion phosphate technology, which -- so [ Dan ] has flipped up this classic trade-off between power and energy density.

What we've done is we've mapped many of the cars in the marketplace, like the [ Taycans ], the Model 3 and the Model S and Y from Tesla and Rivian, which kind of create this nice performance curve, trading off charge time on the Y-axis with energy density on the X. And you see OEMs making very costly decisions to either trade off significant charge time or significant energy density for the other thing. And you can see us push out the envelope, where BYD and CATL excel is on lithium-ion phosphate, which actually wouldn't be plotted here. What's nice is that the cathode material is very, very, very, very, very inexpensive because it's iron-based, and that's where most of the cost is.

So we -- it's a very different category of performance. As a company, our goal is to enter into the performance segment of the market, achieve scale, achieve maturity of those processes. Once we've done those 2 things, we think our approach is actually lower cost. And at that time, you could start to go into the more volume-based market. And we, too, could adopt less expensive cathode materials. And what's interesting is you'd have the world's least expensive cathode material in terms of the LFP, for example, with the world's least expensive anode, which is nothing. We think that's actually a very compelling product with even better performance.

Can we talk about milestones that we should watch for? Well, first, just balance sheet to highlight your balance sheet, the milestones to watch for. And then Ducati, I don't know if you were there.

Yes. I was there. It was [ emotionally tearing ] up.

That was probably cool. But should we expect more events like that type of thing?

Okay. Balance sheet, nice, strong, ended Q3 '25 with about $1 billion in liquidity. That's been a source of strength for the company. We've promised investors we'll always be strategic on maintaining that. Regarding next steps, Thomas Schmall, a member of the VW Board of Management, said, the next steps are 2. One, let's get this bike onto the racetrack and show off what those solid-state cells can do. And two is they would like us to get into their -- a larger prismatic cell that can be -- that is their standard across all of their brands and vehicles for obvious reasons.

And then he said, our joint goal is commercialization before the end of the decade. So that's -- those are the very clear kind of milestones and long-term vision with VW. Other things you should look for is for us to continue to advance these other OEM discussions. Ultimately, our goal is to strike similar type VW collaboration and licensing deals. And then we'd also like to continue to deepen our QS ecosystem relationships and to add others to it.

I know that there's a question about revenue recognition and some of the payments. So when do we expect first revenue from that? From a stock perspective, I think it's very meaningful, but it's accounting type thing too.

It is. So we -- in Q3 '25, we did the first customer billing, $12.8 million. That is a nice start to our commercialization phase. Because VW is an investor in the company, the accounting for that is perhaps nonintuitive. It's initially accounted for as a liability. When the liability is extinguished, it goes right to equity. We think that accounting treatment is specific to VW. But in the future, as we do other type of collaboration deals and certainly licensing deals, revenue is on the table per the facts and circumstances of those deals.

Thank you, Kevin. Appreciate it.

Thank you, Ben.

Good day, and welcome to QuantumScape's Third Quarter 2025 Earnings Conference Call. Dan Conway, Quantum Spaces -- my apologies, QuantumScape's Principal Analyst, Investor Relations. You may begin your conference.

Thank you, operator. Good afternoon, and thank you to everyone for joining QuantumScape's Third Quarter 2025 Earnings 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 the safe harbor provision for forward-looking statements that is posted on our website as part of our quarterly update.

[Audio Gap] and financial periods are subject to risks and uncertainties that could cause actual results to differ materially from those projected. There are risk factors that may cause actual results to differ materially from the content of our forward-looking statement for the reasons that we signed in our shareholder letter, Form 10-K and other SEC filings, including uncertainties posed by the difficulty in predicting future outcomes. Joining us today will be QuantumScape's CEO, Dr. Siva Sivaram, and our CFO, Kevin Hettrich. With that, I'd like to turn the call over to Siva.

Thank you, Dan. I'd like to begin with 1 of the highlights of the year. On September 8, at IAA Mobility in Munich, Germany, we unveiled our launch program with the Volkswagen Group, the Ducati B-21 race motorcycle, developed as a collaboration among Ducati, Audi, PowerCo and QS. The Ducati B21 is the first of its kind vehicle demonstration planned as a showcase for the exceptional performance offer no compromise next-generation battery technology. As a launch program, the Ducati-V21L is ideal. It is a low volume but high visibility demonstration that allows us to put the QSC 5 technology into a demanding real-world application.

The next step for the Ducati program is field testing. Turning to our annual goals. We are pleased to report that during Q3, we began shipping Cobra based QSC 5 B1 samples, completing another of our key annual goals for 2025. These cells are part of the Ducati launch program and were featured on stage at the IAA Mobility Conference. Our remaining operational goal for the year is to install higher-volume cell production equipment for our highly automated pilot line in San Jose, named the Eagle Line.

Equipment for certain key assembly steps has already been installed on the Eagle Line, and this goal remains on track. Another important goal for 2025 has been to expand our commercial engagement including deepening relationships with the existing customers, engaging new customers and bringing additional partners into our growing QS technology ecosystem. In Q3, we made substantial progress on all 3 aspects. With respect to existing customers, the successful launch event with Ducati, Audi and PowerCo at IAA Mobility was a major milestone in our long collaboration with the Volkswagen Group. Last quarter, we also announced a new joint development agreement with an existing customer, and we are continuing to work closely with them as we progress through the first phase of the development and commercialization engagement.

We are also in an active engagement with a new top 10 global automotive OEM in addition to our existing customers. With regard to QS ecosystem development, we continue to add world-class partners. On September 30, we announced an agreement with Corning jointly develop ceramic separator manufacturing capabilities based on our Cobra process. Corning is a global leader in advanced materials and they bring deep expertise in ceramics processing and proven manufacturing excellence to the QS ecosystem. In parallel, we successfully completed the initial phase of our collaboration with Murata Manufacturing have signed a subsequent contract and progressed to the next phase of that relationship.

Our goal is to make QS technology the clear choice by providing our customers with a turnkey ecosystem to serve the global demand for better batteries. With Murata and Corning, we have 2 of the most world-renowned technical ceramics manufacturers as ecosystem partners, and we will continue to grow our ecosystem further. With our achievements this quarter, our vision for commercialization of our next-generation brake technology is beginning to take shape. We are executing consistently towards our key annual goals, demonstrating our technology, engaging with partners and building out our capital-light development and licensing business model.

Everything starts with execution and we are proud of our team's performance. This year, we have already accomplished 2 of our key operational goals, base-lining our Cobra process and beginning shipment of the Cobra based QSC 5 cells continuing our track record of consistent execution against our goals. Q3 also saw our first public technology demonstration with the Volkswagen Group, the Ducati V21L we are expanding our collaboration with existing customers and adding new customers, and we have also expanded our global ecosystem of world-class partners.

The third quarter also makes another exciting milestone, we are beginning to show returns from our capital-light development and licensing business model, driving over $12 million in customer billings in Q3. Our ambitious targets naturally present many challenges to overcome and there is much work left to do. Our objective is clear: revolutionized energy storage capitalized on our enormous market opportunity and create exceptional value for our shareholders. With this aim in mind, we are excited to update shareholders on our continued progress over the months and years to come.

With that, let me hand things over to Kevin for a word on our financial outlook.

Thank you, Siva. GAAP operating expenses and GAAP net loss in Q3 were $115 million and $105.8 million, respectively. Adjusted EBITDA loss was $61.4 million in Q3, in line with expectations. A table reconciling GAAP net loss and adjusted EBITDA is available in the financial statement at the end of our shareholder letter. We continue to drive operational efficiency consistent with our capital licensing focus. We revised and improve our full year guidance for adjusted EBITDA loss to $245 million to $260 million. Capital expenditures in the third quarter were $9.6 million. Q3 CapEx primarily supported facilities and equipment purchases for the Eagle Line.

As a result of efficiency gains and process improvements, including from the Cobra process, PAUSE as well as a change in timing of certain equipment ordering, we revised the range of our full year guidance for CapEx to $30 million to $40 million. In Q3, we bolstered our balance sheet and completed our at-the-market equity program, raising $263.5 million of net proceeds in advance of the August 10 expiration of our shelf registration. We ended the quarter with $1.0 billion in liquidity.

We now project our cash runway extends through the end of the decade, a 12-month extension from our previous guidance of into 2029. Going forward, we plan to move away from providing updates on cash runway, and we'll begin providing updates on customer billings. Customer billings represent the total value of all invoices issued by QS to our customers and partners in the period regardless of accounting treatment. Customer billings is a key operational metric meant to give insight into customer activity and future cash inflows. The metric is not a substitute for revenue under U.S. GAAP.

Customer billings in Q3 were $12.8 million. In Q3, we invoiced VW PowerCo under the upgraded deal announced in July. The resulting cash inflows benefit QS shareholders, they will be directly reflected on the balance sheet as cash when we receive payment. During the collaboration phase of this particular deal because of the related party relationship with VW in accordance with U.S. GAAP a liability of equivalent value will also be created. QS has no repayment obligation with respect to these liabilities.

Once relieved, rather than impacting the P&L, this value will accrue directly to shareholders' equity. Payments from other customers or partners, we expect will be accounted for differently due to the lack of equity ownership or significant related party ties.

Thanks, Kevin. We'll begin today's Q&A portion with a few questions we've received from investors or that I believe investors would be interested in.

Siva the world's first live demonstration of QS solid-state lithium metal batteries and a [indiscernible] B21-l motorcycle premiered at IAA on September 9. Why is this such an important milestone? And what are the next steps on your commercialization road map?

Dan, that announcement and seeing the bike right across the state with an emotional moment for all of us at cues and was obviously a huge milestone for all of our employees, investors and partners. This is long in the making. Now we'll be demonstrating our battery in the field and gathering as much data as possible from field testing.

Stepping back a bit. This was a major step in our strategic blueprint. You can think of this as 4 tracks that are running in parallel. The Ducati program, our PowerCo relationship our other customers and our ecosystem development. With respect to PowerCo more broadly, as announced at IAA mobility, we are looking toward automotive grade standards with the goal of a series production car with QS technology before the end of the decade.

With respect to other customers, we are working towards commercialization deals with additional automotive OEMs. And of course, we are building out our ecosystem with world-class partners like Murata and Corning, so that we can hand our customer -- automotive customers a turnkey supply chain to serve the massive and growing demand for our technology. These are the main areas that we have to execute on.

Thanks, Siva. On that note, QS continues to advance discussions with key high-precision ceramics players most recently announcing an agreement with Corning and advancing our partnership with Murata. How does this fit into the company's overall strategy of building out the QS global partner ecosystem, what are the key benefits of this business model and some potential ways QS may receive economics from these partnerships?

Dan, QS' proprietary ceramic solid sales operator is our core. It enables our anode free architecture and its performance advantage. Our strategy involves partnering with specialized high-precision ceramic manufacturers such as Murata and KONI to scale up separate production. These partners who would supply QS separators to cell manufacturers like PowerCo, could handle final cell assembly. This aggregated model I'll lose Q2, one, leverage the manufacturing expertise and balance sheets of partners with strong reputations in manufacturing as well as IP protection. Two, ceramic production is a highly specialized skill set. And this allows our cell production partners to focus on their core competency.

And three, this accelerates the scale-up of our technology by tapping into their manufacturing capabilities. In short, according in Murata part of a complementary and expanding global ecosystem designed to derisk, scale up and enable a capital-efficient path to commercialization. We believe each partner contributes unique strengths to help us efficiently scale our separated production into high volumes. As you would expect, we are continuing to build out the entire QS ecosystems with additional partners.

And just to add on to that, in the fullness of time, the ecosystem would represent a third source of cash inflow under our capital-light development and licensing business model. The first is monetizing collaboration and customization work with our OEM partners. The second and largest source of inflows would be licensing as our customers produce cells using our technology. The third one would be value sharing from our ecosystem partners.

Thanks, Kevin. Can you expand further on customer billings as a key operational metric? How do customer billings translate into cash inflows.

First, to expand on the significance of customer billings. Our first-ever invoices totaling $12.8 million in Q3 2025 are by themselves an important commercial milestone in the history of our company. It's nice to have arrived at the chapter where we're billing customers. I'd also highlight to investors that customer billings are evidence of our capital-light business model at work. On the front end, we monetize development activities for our customers to tailor our core technology to meet their specific needs. Subsequently, as the customer ramps production, we realize royalties over the lifetime of the project. As we continue to develop further generations of our technology, we'll seek to maintain these lines of business to generate consistent and compelling cash flows.

Payment for development activities has the benefit of being near term. The royalty payments represent the majority of the value capture opportunity through a consistent long-term stream of high gross margin revenue. Value sharing from ecosystem partners represents further opportunity for shareholder returns. I'd also ask investors to keep 4 things in mind when interpreting our customer billings metric.

First, the metric is not a substitute for revenue under U.S. GAAP. Second, the accounting for individual customer billings may differ significantly. Third, the amounts billed to customers may vary from quarter-to-quarter due to fluctuations in activity as we progress through various phases of an agreed scope of work. Lastly, it is important to note that future cash inflows can diverge from customer billings for example, as a result of timing differences, payment terms, prepaid customer deposits or any adjustments to final payment amounts.

Okay. Thanks so much, Kevin. We're now ready to begin the live portion of today's call. Operator, please open up the line for questions.

[Operator Instructions] And our first question comes from the line of Winnie Dong with Deutsche Bank.

Thank you guys so much for hosting. First question is, I was hoping you can help me understand a bit more about the joint development of the ceramic separators with Corning, which you recently announced. -- if you can help me sort of understand maybe some malaria of the differences in comparison to Murata -- and then on rates, you say you've successfully completed the initial phase of the collaboration and then it's also kind of a subsequent contract. I was hoping if you can also there, help me better understand the nature of the agreement, perhaps some details of the economics or the technology know-how in terms of the transfer of it? That's my first question.

Thank you. Thanks for the question. As you pointed out, this is an extremely important aspect of our business model to bring an ecosystem together for QS. And ceramic manufacturing is, as I mentioned earlier, extremely specialized skill set. And we want to bring people with us who can manufacture in high volume taking our Cobra process and ramping it into volume and using their balance sheet to put capital in building these factories up.

And so when we started out with Murata about 9 months ago, they -- we both entered into a development agreement where they came in to evaluate what we needed to do, what do they need to do, et cetera. They concluded that, and we entered to the next system where we start to go ramp our relationship into a much higher level with commitments of volumes, et cetera. And they understand what are the volumes involved and what our customers' needs are. So we are getting to be in that phase where we can take Cobra and ramp in volume.

We have been working with Corning throughout this time as well. Corning had also been under an early development contract with us. And then we came into a more detailed relationship as we announced in early September. And the reason we need 2 of them is, as you think is pretty obvious, the opportunity is so large that it is good for us to have some players. And initially, they will be complementary in different aspects of the ceramic processing, but I expect over the long term to have a much larger portion that each 1 of them does. And so both of them are extraordinarily competent manufacturing partners, and they are excited to be a part of this relationship. I spent time with both CEOs at length, and they are very, very eager for them to get launched into high-volume production to work with our big OEM partners.

That's very helpful. And then second question is the new metric that you just introduced the customer billings metric. I was wondering if you can give us maybe a rough idea on the conversion time to revenue or to collection of those funds and then is that sort of like the main metric then you will be providing over time as opposed to sort of bringing out what revenue can look like in the next maybe 1 to 2 years or so. So just wanted to understand that dynamic a little bit better. And then I think last quarter, you mentioned there is some investigation being done in terms of revenue recognition. And I was hoping if you can also tie that into yours as well.

Winnie, so just to outline back the question part. So as going to the definition of customer billings, talk about their importance and also on the accounting treatment of VW PowerCo. So I'll take them in order. So just to be on the same page, we define customer billings as the total value of all invoices issued by QS to our customers and partners in the period regardless of accounting treatment. And where we hope it's useful to investors is it's a key operational metric to give insight into customer activity and into future cash inflows. I think you also had a question on how those translate into the timing of cash flow payments.

So there, I did mention in my remarks that you could see a divergence from billings to future cash inflows for a variety of reasons. Those could include things like timing differences in payment from customers, prepaid customer deposits, adjustments to final payment amounts, typical operational considerations there.

You asked about the importance. First of all, it is very nice to be in this chapter where we're doing work of value to customers and billing them for it. That's a nice moment for the -- our company. And on the VW PowerCo treatment, the way that the accounting works is the cash inflows, of course, at a broader perspective, benefit QuantumScape shareholders. They'll be reflected on the balance sheet as cash when we receive them. During the collaboration phase of the VW PowerCo deal because of the related party relationship with VW in accordance with U.S. GAAP, a liability of equivalent value will also be created.

A reminder to shareholders, we do not have a repayment obligation with respect to these liabilities. And upon relief of the reliability rather than impacting the P&L this value will accrue directly to shareholders' equity. So this accounting treatment is specific to the collaboration phase of VW PowerCo. Payments from other customers or partners, we expect to be accounted for differently due to the lack of equity ownership or significant related party ties.

Our next question comes from the line of Jed Dorsheimer with William Blair.

Hi, everybody. You have Mark Shooter on for Dorsheimer. Congrats on the Basel progress and especially the Ducati [indiscernible] . It's there's a lot of learnings in actually creating the pack and integration. So congrats on that. During the -- that presentation. VW mentioned cells and EVs by the end of the decade. If we were to take this as 2030, does this track with your development time line? So if we're assuming these samples meet all the required sell specs and a C sample stage gate is when you're producing those cells at scale. And 4 to 5 years seems a bit longer than we expected. So what do you think are the remaining technical boxes that need to be checked. And is there any opportunity to pull this forward with VW or potentially a little competition with the other 2 customer engagements you have ongoing?

Mark, thanks for the question. Just to be technically correct, end of the decade is 2029, okay? So just to make sure we don't add an extra year into the calendar. The second thing is, look, actual productization belongs to the customer, and they announced plans the way they say it. Our job is to make sure we are going all out, we do everything that we can to make sure they are able to ramp as fast as they can. We are working hand in glove very closely with Volkswagen and PowerCo. They know exactly the status of the industrialization because we are working closely with them. and we will continue to do that.

Now in parallel, when we go work with the new customers that we are talking about, both with an existing customer and a new customer, that's a completely independent path from what we are doing with Volkswagen. We don't try to go create competition for our customers, but we work very, very, very closely with each customer adopting our technical road map to their product road map. And that work goes on real time so that we can get to market as quickly as possible. But as Kevin points out, in the meantime, they continue to pay us for the development activity that we do together.

Appreciate the color. 2029 is, I didn't mean to assume 2030 there. One number before the end of the decade. December 29.

Got it. loud and clear. about the VW relationship as well in the last iteration of this, there was some space left in for other potential applications where VW could source cells and sell to other markets potentially. Was this written in to give space to the Ducati program? Or should we be looking at even more adjacent markets? Is there any potential there?

Yes. I actually do not want to again talk for the customer. But you're absolutely right. We are looking at non-Volkswagen Group applications as well into that contract and Ducati being part of the Volkswagen Group would be included in the regular production. And we do expect to have partnerships across both independent of Volkswagen Group with other new customers and customers working with PowerCo that we both work together.

[Operator Instructions] And our next question comes from the line of Mark Delaney with Goldman Sachs.

You have Aman on for Mark. Congrats on the progress. Maybe on the other 2 customers that you mentioned in your prepared remarks, Siva, could you maybe help us get a sense of on where the JDA stands with the customer you announced last quarter? And what needs to happen to get that to a more of a complete commercial agreement?

And similarly, on the Top 10 global Auto OEM, you mentioned you're in active engagement with what it would take to go from the active engagement to a licensing or a JDA agreement.

Aman, thanks for the question. Of course, we are very, very excited about these 2 additional opportunities. We have been alluding to them over the last couple of quarters as to the [indiscernible] and we've been already in active engagement with them. As always, we let the OEMs do the announcement and we follow them. You saw that in the IAA, we had Volkswagen come out and talk in detail about how they are taking the product into different applications that they have in mind. The same way we will be doing that with these 2 as well.

As much as I would love to talk about it ahead of time, it would not be appropriate for me to come and tell you how they are doing. But you will see over time as they start to talk about it more and more, you will get a clearer idea of who they are, what they are doing and how they are doing. And I'm very excited about these prospects.

Maybe secondly, on this partnership approach, recognizing the Corning and Murata relationships for the ceramic separator, I think you mentioned the possibility of expanding the ecosystem to other areas for QS. Can you give us a sense of what areas you might be looking to include for partnerships? And what the kind of structure of these partnerships look like from maybe a financial standpoint as well.

Yes, I'll start with the partnership, and then Kevin will give you the financial impact of those. We are developing a technology ground up that is very, very different than -- in its -- both its potential, its capabilities, scale from regular battery technologies. So wherever possible, we like to include competent and reliable partners from the ecosystem to be with us to invest capital. So we talked about these 2 with respect to the ceramic separators.

We have the high-touch transfer when we developed this no-compromise solution, we want to be able to give them whether it is materials, whether it is equipment, whether it is processes, whether it is software, whether it is metrology, we want to wrap all of this together in a package that they can ramp. And in each of this, when we have original IP and where we have unique capabilities, we like partners to come along with us.

we want to make it as easy as possible for our OEM customers to ramp production as quickly as possible. And so it would behoove us to bring these partners along. We are -- we continue to evaluate additional partners to join the team. And you can see the quality, the caliber of the partners that we choose to work with us.

On the finance side, as much as the cell is differentiated, they're solid-state lithium metal technology, the energy density, the charging and the safety. We think that we're equally proud of the business model as well. We think that's good for our shareholders. It's capital light. It helps us focus on where we think we add value the most, which is an innovation and customer empowerment. It allows each member of our cell manufacturer, customer ecosystem player to play to their strengths, which we think is in terms of time and effectiveness and risk-adjusted path to market, best in terms of how our QuantumScape shareholders see value from that, it really comes from 3 ways.

The differentiation of the cell performance creates value and our shareholders capture it in 3 ways. The first would be the monetization of the collaboration work. You saw that in this quarter, $12.8 million of customer billings, longer-term licensing when our customers are producing ourselves from their factories, we'd get a licensing stream. And finally, it would be value sharing with our ecosystem partners. That together, we think -- each of those in is important in itself and also gives a robustness to our approach.

[Operator Instructions] And with no further questions at this time. I will now turn the conference back over to QuantumScape management for closing remarks.

Thank you, operator. Finally, today, I would like to take this opportunity to congratulate the entire QS team on their outstanding performance this quarter and the execution that they have shown in making this IAA announcement so powerful and well received. And as always, thank you to our shareholders for their continued support. We look forward to updating you on further progress in the months to come. Thank you.

And ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect.