Welcome to today's fireside chat with Factorial Energy. I am your host, Eric Goldstein, managing director at Water Tower Research, covering the mobility and industrial technology sectors. Today I am joined by Dr. Siyu Huang, CEO and Co-Founder of Factorial Energy, which trades under ticker symbol FAC on the Nasdaq. Welcome, Siyu. Thank you, Eric. Thank you for inviting me to this forum. I look forward to the discussion today. Of course. As you may be familiar, Factorial Energy is a global leader in solid-state battery technology. The company is backed by an impressive list of partners, including IQT, the not-for-profit strategic investor for the U.S. National Security Community, as well as Mercedes-Benz, Stellantis, Hyundai, and Kia. Through its two proprietary battery platforms, FEST and Solstice, which are engineered for scalable manufacturing, Factorial delivers industry-leading performance across several different end markets, including automotive, defense, space, and energy storage applications. Before we get started, I would like to point out that the company's safe harbor statements can be found on their website at ir.factorialenergy.com. Also, this fireside chat may not be reproduced or a written transcript distributed without the express written consent of Water Tower Research. With that out of the way, let's get started. Siyu, now that Factorial has completed its Nasdaq listing, how would you characterize the experience so far? What has changed operationally, if anything, now that you're under the public market scrutiny? Yeah, I would say going public, it was definitely a surreal experience. Last year in just three weeks between Thanksgiving and Christmas, we secured a $100 million commitment, moved quickly to closing and rang the Nasdaq bell a few weeks ago. In the opening ceremony we had actually 2 AV drone, aerospace drones. We had a Mercedes EQS, the Dodge Charger Daytona, a Karma Revero super car, and a Factorial solid state battery pack all right there in Times Square. It says a lot about who we are. We're not here just to make promises. We're here to prove our technology in the real world with real customers. Going public was never the goal. Like when we started the company 13 years ago at Cornell dorm, it was never the ultimate solution for the company, but it was a critical milestone as part of the journey. We very much enjoyed it today. We also welcome the discipline and transparency the public company bring to Factorial as well. Our focus has not changed. Execution, hitting our commercialization milestones, and converting our validation into commercial revenue. I would also note that Factorial achieved the VWAP thresholds. It's a volume weighted average price, in its lockup agreements resulting in the early release of lockup restrictions, share held by pre-listing investors. This was a mechanism contemplated in agreements at the closing, and it reflects our stock price performance since the business combination too. It does not reflect any changes in our financial position, strategy or any outlook. Over time we believe that the expanded public float supports a more liquid trading market, more potential index eligibility, and a broader institutional access. Great. Okay. Clearly you mentioned the balanced end market. Factorial touches a lot of ground, from aerospace to mobility. How do you think about where to focus in the near term without potentially spreading the company too thin or chasing whatever market happens to be hot at a particular point in time? Oh, absolutely. This is definitely not a rare syndrome in the battery industry. Right. We have been very deliberate and prudent in our entire history of Factorial. We know aerospace is our near-term focus, really span across the high-spec market, and automotive is in the mid-term. At longer-term it is space, data center, and even humanoid robotics, when the market really takes off. We're not chasing whatever market is hot. We're really focusing on, first of all, the new markets and with the new market that creates new demand. Also, the dominating aerospace is really the future for humanity, and we'd like to focus on those new growth and whatever the market that makes impact to our future and expand from there. We built on two proprietary platforms, with up to 80% higher energy density compared with traditional lithium-ion batteries, and protected by more than 150 patents and patent applications. Our FEST system is really a high energy to high power platform for drones and hyperscale data centers compatible with up to 80% of existing lithium-ion battery manufacturing process. Solstice is really for robotics and space applications that needs high thermal stability. Really, in a space, it's very hostile to liquids. Having a solid-state battery, especially all-solid-state battery without any liquid, is going to be really benign for the vacuum environment. Both technology delivers meaningfully more energy in the same space and weight. The discipline is really to build a manufacturing muscle memory in high-spec market first, before when the large markets are ready, and then we're ready to break through. Okay, makes sense. Let's maybe take a look at your technology and really what differentiates you from some of the other battery companies. There are a lot of battery companies that make big claims, which oftentimes can be misleading about performance. What has Factorial actually figured out that's different, maybe from a cycle life and a safety perspective? What should make investors take a look at the company versus some of the other battery companies? Yeah, I got this question a lot. Honestly, it's very difficult to tell battery companies apart just based on the claims. You're coming from the similar background, right? A lot of similar name numbers, energy densities, cycle life. It's rarely validated by anyone else outside of the company. However, it is also very easy to tell it's all about customer validation in this industry, which major customers actually stand behind the numbers and technology. At this simplistic level, a traditional battery runs on liquid inside, and the liquid becomes a limiting factor on performance and safety. We have the world's only largest 100 amp-hour cell, when we announced that back in 2023 in CES. We also have achieved that the first full validation from any major OEM have done for Factorial batteries from high energy density to cycle life to temperature operating window, and even to safety profile. This is something rarely companies or customers are doing it for you. I think we're very proud that we were able to achieve that with Stellantis a few months ago, which unlocks the Dodge Charger Daytona program. Also the proof is not only just by having the cell testing. Our cell with 300 Wh/Kg energy density, over 100 amp hours, full automotive size, was delivered to Mercedes, put into vehicle, and driven over 1,200km on a single charge. To our knowledge, that was the first for solid state batteries, and when we say a number, we mean it, and Mercedes has proven it. That's great. Let's dig into the road testing milestones maybe a little bit more. Your cells are being road tested in the Dodge Charger Daytona, which you just alluded to, their development vehicle, which is pretty rare among next gen battery companies. As you said, I'm not aware of another next gen company, at least that's listed here, that has their cells being tested in an actual vehicle. What have you learned so far, and how long will this testing phase run? Even to your point, I agree, it's not aware any other company have done this 1,200 km range. I'm not even aware anyone has done for more than 10 kilometer range that has announced in the U.S. market. This is the first solid state battery vehicle running on American soil, and the first time a solid state battery maker has achieved vehicle integration with two top 10 global OEMs. The two programs together tell the story, right? Mercedes spoke to the range, the performance at a high end, as Stellantis speaks to the mass market potential with the same core technology, which is really the beautiful part of the batteries, is really the same technology and two very different markets. You can extend the range with the same volume, or you can have the same energy with lower weight and lower cost. It require also a newly patented pack integration designed by Stellantis. It also reflects the depths of engineering collaboration, and investment from Stellantis as well. On timing, I would say the road testing is definitely a standout part of automotive validation. It's a critical part of the future industrialization as well. Rather than putting a fixed date on it, we'll definitely share the meaningful milestone as we move through the process. Okay, that's great. Let's take a look at the drone market and some flight test data which you just updated. You have some new flight test results that just came out, I believe with Tulip Tech Group. Can you tell us what the data showed and why it matters for Factorial's push into the aerospace and defense markets? Yeah. We're definitely very proud of that. Actually, I'm physically in Netherlands today. You probably know the reason I'm here for the trip. I would say through our partnership with Tulip Tech, the very initial flight test showed more than a 30% increase in the flight range and flight time. That was before any engineering optimization. It's a very early stage result of the headroom. It shows a lot of headroom for us to improve down the road. This also shows the ceiling for lithium ion is really the floor for lithium metal. As the technology progresses and the pack integration improves, we expect that we can go further from there. In the end, it coming down to the fundamentals, right? If my car has twice the range of your car, it's really meaningful advantage, if my drone has twice the range for the competitor's drone, it can be a game changer. It can completely change the mission profile. Also the value does not increase linearly with just the range. It can potentially multiply. These aerospace products really build on the same underlying system as our automotive platforms, which is the FEST system. The progressing drones actually directly strengthen our process and path in mobility, which is the biggest opportunity in the long run. Okay. That's great. That makes perfect sense. Let's turn to your manufacturing strategy. Another very interesting aspect of your story is the capital-light nature of what you're trying to do. Factorial's taken- I wanted to expect $trillion and take 10 years to break even. a capital-light approach, rather than wanting to build your own gigafactories, which could cost $billions. You recently signed a joint development agreement with PowerCo earlier this year. How does that fit into your strategy, and what should investors expect as you try to scale the business? Mm-hmm. I would say capital-light is not really by accident, it's really by design. From early on, we know the battery cycle it could come in with overinvestment and then overcapacity. It actually coming faster than we thought, which is a big problem for the industry, but we see this as opportunity for Factorial. Our model for capital-light is really started with different applications. For high spec applications like drones, we manufacture ourselves for a majority of the manufacturing capabilities. Because it has relatively lower volume with higher margin, we like to take full control of the production. However, for automotive, we're using our joint manufacturing partnership with who already have built infrastructure for manufacturing. This is the thinking behind our joint manufacturing agreements, including the one you mentioned earlier this year, one part of the broader effort. The scarce resource in this industry is not about capacity. It is the technology and process knowledge to make solid-state battery work reliably at scale. I think throughout this joint manufacturing model, we start to realize that the capital intensity is roughly about only 20% of a conventional lithium-ion battery gigafactory. We'll be able to provide definitely a fuller picture with the second quarter results later in August as part of our business update. Okay, that's great. Do we want to touch on the capital position now of the company? Investors always want to understand how much liquidity do you have? How much runway is there? How would you characterize Factorial's capital position today and your ability to execute on your plan given your current cash position? We came out of the business combination and closing with a much stronger balance sheet right now, we have a strong capital position to execute with our technology, commercial, and manufacturing ambitions, especially with very lean operating force here. Because we're capital-light and we're controlling the pace of spending, we have real flexibility in how and when we invest against our milestones. We'll definitely provide more comprehensive financial updates with the second quarter results in August. With our disciplined model, very strong cash position, and a capitalized strategy, it gives us a strong runway to execute our current operating plan. Okay, that's great. Just digging in a little bit more on the capital-light economics. Can you walk us through the economics just in practice? If you design the cell and a partner manufactures the cell, how does that translate into revenue and profitability for Factorial? Yes, it's quite simple. There are two ways we can look at it. One is about contract manufacturing, where we capture effectively 100% of the revenue on cells produced. The second way is licensing, is a small share of revenue and you had a higher margin. The mix, it really depends on the customer. In some cases we may do both even with the same partner. On top of that, our model includes technology and engineering services and material supply, especially when it comes to licensing model, so we participate at multiple points in the value chain. Okay. Let's maybe take a look at the supply chain a little bit more. With a lot of your supply chain rooted in South Korea, how do you think about compliance with Foreign Entity of Concern rules? How does that position Factorial relative to maybe some companies that have more exposure to Chinese suppliers? Yeah, absolutely. We're very proud that we have built one of the strongest supply chain coalitions among the solid state players across material, equipment, and recycling. POSCO Future M, which invested alongside In-Q-Tel, is one of the only companies in Korea that produce both cathode anode materials. They're also one of the largest out there in Korea. We also had this MOU with LG Chem a few years ago as well. Philenergy, a leading Korean battery equipment provider, has also invested in us. They've built gigafactories before. They also have built solid state battery factories too, and they've been working with us on the production infrastructure and wanted to be a foundry for the company. Our partnership with Samkyung HiTech also adds recycling with operations in Korea and in Indiana in the U.S. and giving us cradle-to-grave capabilities. That really strengthened our supply chain resilience and signals strong confidence from our top-tier partners. Okay. That's great. Thank you. Let's take a look at the competitive landscape maybe a little bit. Some of the Chinese battery makers have made some pretty impressive headlines recently just with regard to battery performance. How do you think about Factorial's competitive position, maybe relative to performance of some of the Chinese battery companies? I usually answer this in three dimensions. Again, I got this question a lot. First of all, some very large players, like we've heard even just over the last two, three weeks, they have built like 100 groups. 100 groups literally just working on solid state, dedicated for solid state. According to some of our customers, we, despite we have only 100 people, roughly 100 people, are at the front of the innovation curve. Innovation is not really correlated to the headcounts. Like the AI hype cycle the last 30 years, right? The first company came out of the solution is now the biggest software company, right? Those are actually the small nonprofit that are most, if not most funded among the others. The second, China has imposed export control on its most advanced batteries, especially above 300 Wh/Kg. The regulation can be on and off, right? At the same time, U.S. also has restricted imports in sectors like drones, according to the latest executive order from the Trump administration. That creates a real opening for us in the U.S. and European markets with less competition and higher demand, especially for the better worth of all the conflicts out there. Last but not least, it's not a winner-take-all market. I would say Asian manufacturers right now account for virtually all the battery manufacturing capacity today. I think we better have at least one winner in the spaces, if it's not more in the U.S. or European market. Okay. Let's take a look maybe at energy density. We've talked a little bit about energy density today as one of the core metrics you obviously track internally. Where does that stand today, and where do you expect energy density to go over the next year or two, and what are customers typically looking for? Today, we have announced that we achieved more than 390 Wh/Kg in terms of energy density already. That's not a lab figure. It's a cell that powered the Mercedes 1,200km drive. It's validated externally by the customers. To our knowledge, that's the first in the industry for the automotive to deliver that long range. We have made further progress since then. We look forward to a more detailed roadmap update also in our second quarter earnings results. I would say the trajectory is, in short, is moving to the right direction. Okay, great. Last question. You made a recent board addition. You welcomed Dieter Zetsche, the former chairman of Daimler and the head of Mercedes-Benz, to your board. What does this type of addition bring to Factorial at this stage of the company's growth? Well, Dieter has been with us for the last five years as an early investor and advisor to our board. We're very proud that he's not bored at us yet. He was very happy to step up as a board member after closing. Having someone of his stature join us as a public company is a great testimony to our credibility. He led one of the most iconic names in global automotive and brings decades of strategy and operating experiences at the very top of the very top of the industry. As we move from validation to commercialization at scale, that judgment is invaluable. Okay, great. Well, Siyu, I'd like to thank you for joining us today. For more information on Factorial, please refer to the company's website. I'd like to add that the views expressed in this fireside chat may not necessarily reflect the views of Water Tower Research, LLC, and are provided for information purposes only. The fireside chat may not be distributed or reproduced without the written consent of Water Tower Research and should not be considered research nor a recommendation. Water Tower Research is an investor engagement firm, not a licensed broker-dealer, market maker, investment bank, underwriter, or an investment advisor. Additional disclaimers can be found at watertowerresearch.com. Siyu, thank you very much. Thank you, Eric.