Solid Power Q3 2023 Earnings Call Transcript

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Provided by Quartr
November 7, 2023

There are 7 speakers on the call.

Operator

Greetings. Welcome to the Solid Power Inc. Third Quarter 2023 Financial Results and Business Update Call. Please note that this event is being recorded. I'd now like to turn the conference over to your host, Jennifer Ahnquist, Investor Relations for Solid Power Inc.

Operator

Thank you. You may begin.

Speaker 1

Thank you, operator, and thank you, everyone, for joining us today. I'm joined on the call today by Solid Power's President and Chief Executive Officer, John Van Schoter and Chief Financial Officer, Kevin Papczewski. A copy of today's earnings release is available on the Investor Relations section of Solid Power's website at ir. Solidpowerbattery.com. I'd like to remind you that parts of our discussion today will include forward looking statements as defined by U.

Speaker 1

S. Securities laws. These forward looking statements are based on management's Except as otherwise required by applicable law, Solid Power disclaims any duty to update any forward looking statements to reflect future events or circumstances. For a discussion of the risks and uncertainties that could cause actual results to differ materially from those expressed on today's atsolidpowerbattery.com. With that, let me turn it over to John Benskoter.

Speaker 2

Thank you, Jen, and good afternoon, everyone. Thank you for joining the call today. I'll begin today with an important milestone, our A Sample EV cell shipments and entrance into automotive qualification. I'll then provide an update on our solid overall progress and give early thoughts on 2024 priorities and goals. After that, I'll hand the call off to Kevin for the financial review and we'll open up Q and A.

Speaker 2

Over the last week or so, we shipped more than 80 of our EV cells BMW to officially begin the automotive qualification process. This is no small achievement. A year ago, we were struggling with yield issues on our 20 amp hour cells as we initially scaled up our roll to roll line production. Since then, the team has overcome those obstacles and more, including a few significant supply chain and vendor quality issues on both the cell and powder production sites. We've done this while completing SB2 construction, initiating powder production and incorporating our new SP2 powder into cells.

Speaker 2

I want to Extend my gratitude to the team and reiterate my appreciation for the strong team I've inherited. Looking more closely at the EV cells we just shipped, These EV cells meet BMW's initial performance expectations and represent our first or A1 cell for the automotive qualification process. These A1 cells are 60 amp hour, have 40 layers and are about 10 by 30 centimeters in size. Importantly, they were also produced on our EV cell line using electrolyte from SB2. We expect A1 cells are to be followed by A2 and A3 cells, each with increased performance targets for A2 and A3, but this is a great start.

Speaker 2

And we are now on a path to work with our partners to hit those targets. We can't provide details at this point, but if we continue to improve towards those A2 and A3 targets, We believe we will drive greater range, battery life and safety for the consumer while driving down cost for the OEMs. These cells are not only a key step towards the commercialization of Solid Power's technology, they are a key step for BMW's demo Power a full size BMW EV in 2024. Our ability to enter a sample was bolstered by the investments into our processes earlier this year. It also includes some new innovative screening techniques that the team developed, which enable us to identify and address problems more efficiently.

Speaker 2

Collectively, these processes helped us get into automotive qualification And also give us confidence the cells we have delivered will meet the targets laid out for us uniformly across all shipments, which is critical for overall EV pack performance. It's also worth mentioning that these sales came off our EV BMW's efforts to accelerate the development of our solid state technology was a huge driver and we are grateful for their collaboration. Now that we're successfully producing A1 cells, we have also separated our two lines with each running concurrently. Our EV cell line is focused 100% on our A Sample cell production for our partners. And our pilot Our development line now fully dedicated to advancing our cell performance, including R and D on our next gen cells.

Speaker 2

During my travels this quarter, I got to visit BMW's battery development facility in Parsdorf, Germany. The facility is impressive and the facilities and infrastructure are progressing with their line to be built over the coming year. A substantial square footage will be dedicated to continued development of Solid Power's technologies and staffed by BMW's experienced battery engineers. Once complete, this line will expand development activities of our solid state technologies in 2 regions of the world. In addition, we continue to progress the Ford and SK ON cell requirements, which in some respects are different than BMWs.

Speaker 2

On the electrolyte side, since we began production of our electrolyte powder in SP2 in April, we have been diligently working to increase production volumes The team has done a great job. We have the final configuration of our production line in place and are now producing powder at sufficient volumes and quality to use SP2 powder in the manufacture of our EV cells. Importantly, we stopped producing powder at SP1 and begun to redeploy our SP1 team and resources towards development of our next gen powders. We feel good about our capability to produce 1.25 metric tons per month at SB2 by the end of this year. So far this year, we have provided SP2 electrolyte samples to 2 potential customers and are working towards providing samples to 4 more in the near future.

Speaker 2

We believe many EV OEMs and Tier 1 battery producers Lastly, I'd like to take a moment to briefly update you on the We're still refining our 2024 goals, but I feel these priorities will likely form the basis for what we want to achieve next year. On last quarter's earnings call, I outlined 3 initiatives that I saw as immediate strategic priorities, specifically establishing a presence in Korea, Increasing our strategic supply chain capabilities and elevating our external and investor communications. First, establishing a presence in Korea. During the quarter, we established a new legal subsidiary to do business there, Secured an opened office space in Korea and laid the groundwork for collaboration with the Korean National Labs and Universities. Most importantly, we visited the Peninsula over an approximately 10 day period with some of my senior team.

Speaker 2

During the trip, we've added options with our partners, suppliers and potential customers and got very positive feedback on our plans. We evaluated our options and narrowed down to a few potential paths to further expand our Korean presence. We feel good about our plan and our ability to make progress over the next few months. Our plan should allow us to accelerate building our team in Korea and tapping into the world class battery talent pool that exists there. We look forward to sharing more when we can.

Speaker 2

2nd, elevating our strategic supply chain activity. During the quarter, we battled through the similar grade material issues we have been facing. I think the team did a fantastic job ensuring we kept development and production moving forward while working with our suppliers to address root causes. We also began the recruiting process for the key supply chain leadership we need and met with potential new suppliers in Korea for critical materials. Lastly, on supply chain, we successfully implemented SAP on October 1, Going live with supply chain and accounting functions.

Speaker 2

We are excited about the tools this will provide. Our team did a great job here keeping this Project on time and under budget. And I'd like to thank the many involved for the tireless and successful efforts. 3rd, elevating our external and investor communications efforts. During Q3, we continued to meet with shareholders, but increased the amount We completed a positive series of meetings in a non deal roadshow and are planning another in Q4.

Speaker 2

A few weeks ago, we posted a new investor deck, which does a good job summarizing Solid Power's investment thesis. Also from a media perspective, we increased our PR efforts with social and print media. We've done 3 to 4 interviews with a great Denver Post article and the rest on the way. IR planning is well underway for 2024 with a focus on increasing higher quality interactions and greater visibility. We are planning an investor analyst event sometime in 2024, where we expect to provide a comprehensive technical update on our cell and electrolyte progress, provide insight into our commercialization timeline and update our high level financial projections.

Speaker 2

Lastly, in IR, one of the things we hear consistently from investors is that they'd like to have more frequent updates. To be clear, we will only release news when we have meaningful news to share. While our progress has been strong, We will not always have major news to share on a frequent or consistent schedule. When we hit significant milestones or accomplish one of our goals, We will proudly release it. But world changing development progress isn't always linear.

Speaker 2

Shifting gears toward new priorities, in October, the senior team at Solid Power spent a couple of highly productive days working off-site on longer term strategic plans and initiatives. Following those meetings, we've added 2 additional priorities, which we'll focus on in 2024. The first is seeking at least one additional OEM partner. A new OEM partner must be additive in terms of collaborative expertise and also fully aligned with our current partners' objectives. The second is accelerating our revenue timeline to drive cash generation opportunities.

Speaker 2

We expect any new revenues to be driven by electrolyte sales, Feedback from our current sampling process continues to be positive. Each of these new objectives demonstrates our competitive urgency and the shift towards growth and technology commercialization. Collectively, all five of these priorities will likely form our goals for the year. As we fully plan out these new priorities and set our goals and guidance for 2024, we'll go into them in more detail. With that, I'll hand it over to Kevin to take you through our financial results.

Speaker 2

Kevin? Thanks, John. Good afternoon, everyone. I'll start off with an overview of our financial results and then update our 2023 outlook. Overall, Solid operational performance has us tracking favorable to our ops and CapEx targets for the year, strengthening our solid liquidity position.

Speaker 2

Our Q3 'twenty three revenue of $6,400,000 was in line with our expectations and again driven by strong execution on our development and government contracts. 3rd quarter 2023 operating expenses were to build our EV cells and increase our electrolyte production. We expect these development related investments to be slightly higher in the Q4 than they were in the 1st 3 quarters of 2023. Our Q3 'twenty three operating loss was $21,500,000 and net loss was $15,100,000 Touching on our balance sheet and liquidity, during the Q3, we invested $15,300,000 in operations and $8,300,000 in CapEx. We ended the quarter with total liquidity of $422,300,000 consisting of cash, marketable securities and long term investments.

Speaker 2

Looking ahead to the rest of 2023, Right now, we believe both our operational and capital spend will be slightly favorable to the low end of our guidance range for the year. We continue to expect revenue in the range of $15,000,000 to $20,000,000 but we believe our 23 cash investments We'll come in slightly below the $70,000,000 low end for operating and the $50,000,000 low end for CapEx. I want to praise the ops teams here as these favorable reductions are driven by positive factors. On the operating side, our EV cell development and yields have been solid, meaning we have needed to build fewer cells. This translates into less material and labor spend.

Speaker 2

On the CapEx side, the team has done a great job optimizing processes and finding more cost effective ways to structure our SP2 powdered line. As a result, we've been able to eliminate some of our planned equipment. There are also some investments where we can prudently wait until 2024 to make. Those will get picked up when we give guidance for next year. So taking into account those favorable investment spends, we now expect ending liquidity for 2023 slightly above the high end of our guidance range, which was $375,000,000 Finishing up, at this point, we have no real change or update to our longer term projections.

Speaker 2

Although this great spend performance by our ops team helps strengthen our overall liquidity. With our capital light business model, we are still sitting in a very solid position for the long term. With the ability to run all the way to the late 20s with our current cash and longer as we secure the financing or grant funding that we're pursuing. We plan to give financial guidance for 2024 year end with longer term high level projections provided during our planned 2024 IR event. With that, I'll now turn the call back to John.

Speaker 2

Thanks, Kevin. Before we head to Q and A, I'd like to reiterate that since I've stepped into Core values is to earn credibility through execution. I believe the team here does that on a daily basis at all levels. In just a few months, I've seen excellent execution in driving a sample cell deliveries and ramping high quality SP2 electrolyte production despite battling through technical and supply chain challenges. Solid Power continues to execute on its technical, customer and financial targets.

Speaker 2

We are confident continuing to execute this way will drive long and with that, I'll hand it over for Q and A.

Operator

Yes, thank you. We will now begin the Q and A session. And the first question comes from Mike Schuske from D. A. Davidson.

Speaker 3

Good afternoon and thanks for taking my questions. So John, I think being in Korea sounds great. Glad you're making some headway there, opening an office and getting things started. And you already do have a presence kind of in Europe given where you're working with I was wondering if or kind of why don't you have other plans for perhaps Japan, For China or elsewhere for additional opportunities or is it just going to be kind of one step at a time here?

Speaker 2

Yes. I think it is one step at a time, but my vision for the Korean office is actually to operate throughout Asia. That's one of the beauties of Planning the flag there initially. I think we can do work in Japan and the rest of Asia from that location. But yes, I do think we're going to step wise and just be mindful of the costs associated with creating satellite offices, but balance that against the opportunity to

Speaker 3

Great. Thanks for that color. I wanted to turn to the Strike that's underway or just wrapping up here in the U. S. At the big three automakers.

Speaker 3

There's some headlines as to what's in the new contracts that We don't have to name any individual company. They all kind of seem somewhat similar. I guess if you are you have you gotten any Feedback from any of your partners that there will be changes to the timeline or amount of investments in their In the EV vehicles or in the battery facilities at this point?

Speaker 2

Yes. We've been monitoring this very regularly Since all the headlines have come out from the various strikes and so forth and plant pausing and the like, but Honestly, we have not seen any change in terms of the pull from our partners from around the globe. All of the A push that they've had for specific timelines and requests really haven't changed. So we're very pleased with that. It may just be the time horizon That they're looking at for the commercialization that's driving that, but we're still under a lot of pressure to perform

Speaker 3

Great. I appreciate those comments. I'll pass it along. Thank you.

Operator

Thank you. And the next question comes from Vincent Anderson with Stifel.

Speaker 4

Yes, thanks. So Toyota hasn't necessarily been quiet about its sulfide technology, but I am curious if you noticed Any shift recently in the conversations throughout the industry after their announcement of working on raw material integration with Itamitsu, I would imagine it's a net positive to have the chemistry further validated by these big market participants. But I'm wondering if it's translated yet into an uptick in

Speaker 2

Yes, we do see it as a net positive with major players now backing sulfide based All solid state batteries in their roadmap, we think that there's room for multiple winners. And we think that given our position From ability to produce volume electrolyte now and our plans to grow that in the future that we're very well positioned to participate with the players that are intending to be there with sulfide based ASSPs.

Speaker 4

Perfect. Thanks. And then could you just refresh my memory on if there's any tie between SP1 and SP2 With regard to some of the optimization you're doing around your electrolyte chemistry, insofar as SP2 accelerates that or Optimizing the chemistry further was part of the step of moving to SP2 at scale or are those completely independent?

Speaker 2

No, they are interrelated. As we've shifted all of the electrolyte production to SP2 and Shut down the SP1 production. It's allowed us to reconfigure the physical area in SP1 and Also, have resources move around to support our next generation of powders there in SP1. And then we also are underway in construction for the next generation powder laboratory here at SP2. That is scheduled to be completed next summer.

Speaker 2

And so we'll go through another redistribution of square footage, Lab capability and personnel when that facility is available in SP2, again to focus on the next generation electrolytes.

Speaker 4

Great. And then last one specifically for you, John. You've had a few months at Solid Power now. I'm just wondering what impression Fresh Pair of Eyes has found with regard to how you see the balance of call it risk reward mainly on capital requirements of driving development and adoption of solid state cells all the way down to the OEM level versus maybe focusing on optimizing your chemistry further, broadening the commercial opportunities of the electrolyte on more OEM agnostic basis and letting the market come to you and tell you exactly when and where to commit more capital.

Speaker 2

So we're very customer driven. We're finding that our partners that we have right now Are having different requirements and different approaches to, ASSB development and we're really Following our partners' requirements and collaborating with them to meet those requirements. That is kind of the landscape that we see right now. I think it's appropriate given the nascent nature of the market Based on my experience with early stage technologies, and as it matures, I think there's an to do more, call it, independent and more reusable development across multiple customers. But right now, given a lot Still has to be sorted in terms of performance.

Speaker 2

That is the nature that we're following right now with each OEM.

Speaker 4

Okay. That's very helpful. I appreciate it.

Operator

Thank you. And the next question comes from Jeffrey Campbell with Seaport Research Partners.

Speaker 5

Good afternoon. A Sample cells typically are tested for Cell performance and cycle life and allow a manufacturer to make design and production decisions. Since your sales already meet BMW's Initial performance expectations, what are the primary endpoints that the A1 cells will be tested for?

Speaker 2

Yes. We just shipped the cells. We of course have characterization data on them going out, but we need confirmation of BMW's Testing, we need them to be integrated into packs or into modules and then into packs. And so we're still a ways away from being able to comment really further And I would emphasize, yes, that we've met BMW's requirements for A1, But those are primarily driven by the demo car. So there will be A2 and A3 we expect that we'll be working with BMW on for subsequent improvements as we go through the entire A Sample part of the process for A Sample qualification.

Speaker 5

Okay. Thank you. You mentioned in your prepared remarks that another OEM Chip, this is the 2024 goal. Is it possible that that partner might not be one of your current JV relationships?

Speaker 2

Yes.

Speaker 5

Okay, great. Thank you. Appreciate it.

Operator

Thank you. And the next question comes from Brian Dobson with Trotman Capital.

Speaker 6

Hi, thanks very much for taking my question. So wholesaling the electrolyte is likely a key area of opportunity. Would you speak to the competitive landscape in that segment and also what you see

Speaker 2

I'm sorry, could you repeat the question? You broke up. I didn't get the first part of it.

Speaker 6

Yes, sorry about that. So wholesaling the electrolyte and is a key area of potential opportunity in the future. Could you speak a little bit to the competitive landscape that you're seeing in that segment And what your advantages might be?

Speaker 2

Sure. Good question. We have taken an approach Invest ahead of the aggregate demand that's in the marketplace. And I believe it's been a key part of the uptake that we have from not only our current partners, but our potential future partners. And that these are all very high volume minded Companies in very high volume spaces and I think that really differentiates us from the other current providers that are Providing electrolyte into the market.

Speaker 2

Obviously, market windows We have a good balance to what we see demand wise and what we can produce here at SP2. But we're constantly looking at that and actually have On the drawing board SP3 plans right now underway to again stay ahead of that. In terms of competitors, I think That we're near the front of the pack with regard to ability to produce high quality, consistent production to the level that is required by the marketplace. There may be 1 or 2 others that could do that today, but we're in a small set, I believe, relative to Wholesaling Electrolyte.

Speaker 6

Yes, very good. And then, just turning to BMW, if I could ask a follow-up question on that side. You mentioned that you've met the initial requirements and that you're currently making adjustments For BMW's A2 requirements, how

Speaker 1

long do you

Speaker 6

have to do that and how far along are you in making those adjustments?

Speaker 2

Yes. For clarification, A2 is going to be a new cell design. So it's more than just an adjustment. And it could require some other Chemistry is all the way back to the electrolyte depending on where we land. We literally are in the collaboration phase with them to define Specifically, what those requirements are going to be and based on those requirements, it will drive an overall timeline.

Speaker 2

As we commented earlier in our remarks, we do plan to do an investor event in 2024. And one of the things that we'll cover in that, we expect will be, more details around our A2 Timing and specifications. Really not in a position to comment any further on that right now, but It is underway. It's a cell design as well as potentially back into electrolyte chemistries.

Speaker 6

Yes, very good. Thanks very much.

Operator

Thank you. All right. That does conclude the question and answer session as well as the call itself. Thank you so much for attending today's presentation. You may now disconnect your lines.

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