SES AI Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 8, 2023

There are 5 speakers on the call.

Operator

Afternoon, all. I would like to welcome you all to the SES AI Corporation Second Quarter Earnings Call. My name is Brika, and I will be your moderator operating today's conference call. All lines are on mute The presentation portion of the call today and the opportunity for questions and answers at the end. And one on your telephone keypad.

Operator

And I would now like to hand you over to your host, Eric Goldstein, VP of Investor Relations, VCS, sir, please go ahead when you are ready.

Speaker 1

Thank you, operator. Hello, everyone, and welcome to our conference call covering our Q2 2023 results and Financial Guidance for 2023. Joining me today are Chiqiao Hu, Founder and Chief Executive Officer and Jeng Nielis, Chief Financial Officer. We issued our shareholder letter just after 4 p. M.

Speaker 1

Today, which provides a business update as well as our financial results. You'll find a press release with a link to our shareholder letter and today's conference call webcast in the Investor Relations section of our website atses.ai. Before we get started, This is a reminder that the discussion today may contain forward looking information or forward looking statements within the meaning of applicable securities legislation. These statements are based on our predictions and expectations as of today. Such statements involve certain risks, assumptions and uncertainties which may cause our actual or future results and performance to be materially different from those expressed or implied in these statements.

Speaker 1

The risks and uncertainties that could cause our results to differ materially From our current expectations include, but are not limited to, those details in our latest earnings release and in our SEC filings. This afternoon, we will review our business as well as results for the quarter. With that, I'll pass it over to Chi Chiao.

Speaker 2

Thanks, Eric. As everyone, I'm sure, is aware by now, in 2021, we became the world's First company to enter automotive A Sample with lithium metal batteries, and we did so with 3 OEMs, GM, Honda and Hyundai. Earlier this year, we laid out the goal to transition to B Sample, and I'm happy to report we are making really exciting progress. We continue to push forward with high energy densities and a wide range of temperature and power requirements enabled by our unique and Avatar System. Although we have a way to go before full commercialization, we are getting closer to making the leap from automotive A Sample to be the 1st supplier of lithium metal batteries in the automotive B sample stage.

Speaker 2

Furthermore, While we are doubling down on our progress with our automotive customers, we see another unique opportunity in urban air mobility, UAM. That I will discuss later in this call. In the EV market, we need to solve 2 major hurdles to position us to transition to automotive B Sample. The first is manufacturability. We're not talking about small cell lab scale We are talking about 100 mpower cells in pilot scale manufacturing facilities for real automotive A and B sample qualification.

Speaker 2

This year, we expect to transition from producing about 1,000 total 100 ampoule lithium metal cells in 2022 to about 1100 ampoule lithium metal sales per month per line. Importantly, our sales are high quality and will continue to Tested both in house and by our OEM customers. Now that we're more than halfway into 2023, We have lines in both Shanghai and South Korea making about 500 large 100 ampoule lithium metal cells per month with 1 shift. By adding a second shift, we are confident that we will achieve over 1,000 sales per month per line. In addition to building the cells, we're also adding testing bunkers.

Speaker 2

We built 1 test bunker earlier this year. We expect to finish our second testing bunker before September and plan to add a few more bunkers in our facility So we can test as many cells as we can build. Providing a safe place to test a large quantity of our lithium metal cells is critical. This will allow us to accelerate our development process and test ourselves under a massive universe of conditions, So they are better prepared for real world usage. These large 100 ampoule lithium metal cells have been either tested directly by our customers or tested in house and the data shared with our customers.

Speaker 2

Our second hurdle With B Sample line preparation, we announced Line 4 earlier this year, which will be dedicated to B Sample EV sales for one of our customers. We have completed the equipment process design and evaluation with our customer and have commenced a bidding process with a few vendors. We expect this line to be ready in Q1 of 2024. Line 4 will have more than 1400 quality checkpoints compared to only 300 quality checkpoints in the first three ASEMPLE lines and will be fully compatible with our avatar system. We don't need to wait for line 4 to be complete to start the actual B Sample phase since we expect that our current A Sample lines will soon be capable of producing nearly 1,000 lithium metal cells per month per line.

Speaker 2

We will use the A Sample lines in the early phase of B Sample And we'll move to line 4 for the later part of B Sample after it's fully operational. Our world leading energy density and power enabled by our lithium metal Battery technology makes SCS batteries a great fit not just for automotive applications, but also for urban air mobility and drones. As such, in addition to Line 4, we're also preparing to build a new Line 5, which will be dedicated to B Sample for urban air mobility, or UAM, sales for another one of our OEM customers. We will leverage the equipment and process design from Line 4 and customize for UAM cells. Both Line 4 and Line 5 will have our latest quality control system with more than 1400 quality checkpoints and be fully compatible with Avatar, allowing full traceability of our sales.

Speaker 2

We're super excited about both Line 4 and Line 5. Line 4 will be our 1st B Sample line for EV. Line 5 will supply cells for UAM and other drone applications that need lightweight and high capacity lithium metal cell. In terms of performance, lithium metal is a perfect fit for UAM and drone applications because of its lightweight and high discharge power density. To review, We now have 3 ASAMPLE lines operational.

Speaker 2

We expect to increase throughput from 1100 ampoule lithium metal cells per year last year to nearly 1,000 large 100 ampoule lithium metal cells per month per line by end of this year. And we are preparing 2 B Sample lines, 1 dedicated for EVs with 1 OEM customer, that's line 4, And another dedicated for UAM with another OEM customer, that's Line 5. Both Line 45 are expected to start producing at least 1,000 high quality large 100 ampoule lithium metal cells per month per line once operational, both fully compatible with Avatar and with full quality traceability. We expect to have all 5 lines, each producing at least 1,000 high quality 100 ampoule lithium metal cells per month per line. We believe that this will accelerate our B Sample development and qualification with our existing 3 OEM customers and open up additional sampling capacity for a new pipeline of OEMs in both EVs and UAMs at the B Sample stage.

Speaker 2

In addition to preparations for B samples, We're also investing heavily in fundamental R and D to accelerate our material discovery. For a novel battery technology like lithium metal, It fundamentally comes down to materials, especially our core competence, which is the electrolyte. I am proud to announce that we will be building a new electrolyte foundry near our headquarters in Boston. It will focus on novel electrolyte Molecule discovery and synthetic pathway development. This novel material discovery platform will allow us to improve our key performance and safety metrics by accelerating design to data time frame for new electro solvent and salt molecules and Formulations.

Speaker 2

We are aggressively hiring top electronic scientists and chemists and AI machine learning scientists To develop totally new molecules and synthesis techniques, not only we are discovering new materials and new techniques, but we're also discovering New techniques to discover new techniques. With all these exciting developments, we need more talent. We recently added an SVP of Quality, Mr. Kojima Atushi, who has more than 30 years in quality management from Sanyo Panasonic and GS Iwasa in nickel cadmium and lithium ion batteries. He is managing our group level engineering and manufacturing quality to ensure our 5 large cell lines, 3a Sample and 2b Sample, incorporate the most rigorous quality system and are compatible with Avatar.

Speaker 2

Since lithium metal is new and this is the first time anyone has taken lithium metal to A and B samples, We intentionally use more rigorous quality management than even the most rigorous lithium ion lines. Under our new SVP of quality, our yield actually decreased initially because the standards we're employing are much more stringent. And first, we're discovering issues at a much deeper level, and that's a good thing. We want to systematically build A solid quality foundation, especially in BSAMPLE, is extremely important for our future. In summary, earlier this year, We established a milestone to transition to BSAMPLE.

Speaker 2

Not only are we confident that we will achieve that, but we also expect to go beyond. We are expanding into UAM and drone applications, which in addition to EVs are ideal market for our unique high energy density and power density lithium metal battery. Not only do UAM and drones represent early commercialization opportunities for us, But we also believe that lithium metal will enable UAM the same way that lithium ion enabled portable electronics back in the 1990s. We're also expanding into novel techniques for material and process discovery using AI machine learning. We are at an exciting intersection between sustainability, electric transportation and AI machine learning.

Speaker 2

We seek the world's best material scientists, chemists, cell engineers and AI machine learning scientists to join us. What started out as simply developing a novel battery has become much more, including enabling urban air mobility and building a superintelligence system in both battery manufacturing and material discovery. With that, I will hand the call over to June.

Speaker 3

Thank you, Qiqiao. Good afternoon, everyone. Today, I will cover our Q2 financial results and discuss our operating and capital budgets for full year 2023. In the Q2, our operating expenses were $19,300,000 up slightly from the same period last year. Stock based compensation expense was $7,300,000 in the quarter.

Speaker 3

We reported research and development expenses of $6,400,000 a reduction of approximately $800,000 from the same period last year. This reduction primarily resulted from a higher recovery of our research and development expenses from our OEM customers, partially offset by an increase in personnel costs, mainly attributable to headcount growth as well as higher spending for lab consumables, material consumption and related expenses in support of our ongoing battery cell development efforts. Our gross R and D spend in the 2nd quarter was $14,700,000 which was partially offset by $8,300,000 billed to our OEM customers, which are treated as Contour R and D expenses. Our G and A expenses were $12,900,000 an increase of $1,000,000 from the same period last year. This increase primarily resulted from higher personnel costs, mainly attributable to our growth in headcount as well as higher professional fees and audit related fees to support our operations as a public company.

Speaker 3

These increases were partially offset by a decline in insurance expenses. Year to date, Cash used in operations was $30,900,000 CapEx so far this year has been $7,800,000 primarily reflecting payments for equipment and facilities. Capital expenditures are expected to accelerate in the second half of the year as we finish the vendor selection process for Line 4 and Line 5 and formalize purchase orders. Looking at liquidity, our balance sheet remains very strong. We ended the 2nd quarter with combined cash, cash equivalents and marketable securities of $357,000,000 We continue to believe our liquidity is sufficient to get us to commercialization.

Speaker 3

At this time, our financial guidance for 2023 is unchanged. We are still guiding for an expected cash usage from operations in the range of $80,000,000 to $100,000,000 and for CapEx in the range of $50,000,000 to $70,000,000 In total, we expect cash usage for the year in the range of $130,000,000 to 170,000,000 We're currently trending toward the lower end of this range. Halfway through the year, we have made a lot of progress. As Qichao indicated, We're preparing for the transition to B samples and we'll be making investments in more advanced equipment for Line 4. In addition, we anticipate expanding into the UAN market with Line 5 providing another exciting growth opportunities for the company.

Speaker 3

We appreciate the excellent support from our shareholders, employees and OEM customers. With that, I will hand the call back to Eric.

Speaker 1

Thanks, Jing. Brica, let's open the lines for questions.

Operator

Thank you. We have the first question from Shawn Everson of Watchtower Research. You may proceed.

Speaker 4

Okay. Thank you. Good afternoon, everyone. Chi Chiao, is there any difference in the battery itself and the Technology between the drones and the unmanned aircraft and what you would be using for passenger vehicles?

Speaker 2

Yes, Sean. Yes, there are. And then one is the cell dimension, And that's why we have the 2 separate lines, line 4 for EV and then line 5 for UANs. And then so the cell dimension is the key difference. And then we don't want to go back and forth and then change the dice because that would ruin the quality.

Speaker 2

And then another is for the UAN, The focus on energy density is a lot more than the EV. And then Focus on cycle life is relatively less. So primarily, so dimension and also just cell design in terms of the final performance and energy density balance.

Speaker 4

So, Treval leveraged all the same materials, technology In chemistry effectively, it's just sort of how you're packaging these and as you said dimension?

Speaker 2

Yes, yes. So the materials, the platform is definitely the same. Also the quality management systems, we spent a lot of time Improving our quality management and then all the latest quality management that we're going to implement in Line 4, we will implement in Line 5. Absolutely.

Speaker 4

And it was really interesting to talk here about the AI and materials development facility in Boston. And I'm curious, More from a bigger picture strategic standpoint, do you envision this becoming kind of where you may be inventing new molecules Coming up with new chemistries and licensing them and selling them or are these things that is it going to be primarily focused On developing new battery technologies for you, I'm just trying to understand how it fits in Strategically with you because it seems like very exciting opportunity, but how will this drive revenue for you, I guess, is what it comes down to?

Speaker 2

Yes. It's more a ladder. It's this internal tool that we're going to use to develop better materials and then No one else has this. And then it's a really exciting area. And then Boston being the center for a lot of Life science, drug discovery and AI machine learning computer science talent both at a university and also at the industry level It's a really good place to invest.

Speaker 2

That's why we decided to open this center. So it's more of an internal R and D capability That will allow us to keep innovating. We expect to get to see sample 25, and then so that's the 1st generation. And after that, the 2nd gen, the 3rd gen, and then each time, we want to be able to keep improving. So And then we want to use our human scientists as well as this AI platform.

Speaker 4

If I could just ask one more question on that. As you Are you taking effectively all of the data and experience that you have, right, that you've compiled to date? And then you're taking that and using that as a base and then layering AI over it to look at different scenarios. So I'm just wondering how it integrates Obviously, you already have a massive base of knowledge and know how and technology and you're getting more from the field, right, in terms of performance and things like that. So I'm trying to understand the integration of the existing information and knowledge base you have and how this fits in and works going forward.

Speaker 2

Absolutely. So all the internal data will be an input to this. And then also, we want to Have the machine to develop a new and also different understanding from the one that we human have. And then this new understanding we will use to search for new materials and then beyond The constraints that human scientists have.

Speaker 4

Great. Thank you.

Speaker 2

Thank you.

Operator

Thank you.

Powered by Quartr
Earnings Conference Call
SES AI Q2 2023
00:00 / 00:00