Good day, and welcome to QuantumScape's second quarter 2021 earnings conference call. John Saager, QuantumScape's Head of Investor Relations, you may begin. Thank you, operator. Good afternoon, and thank you to everyone for joining QuantumScape's second quarter 2021 earnings conference 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 and as part of our quarterly update. Forward-looking statements generally relate to future events or future financial or operating performance. Our expectations and beliefs regarding these matters may not materialize. Actual results and financial theories are subject to risks and uncertainties that could cause actual results to differ materially from those projected. The safe harbor provision identifies risk factors that may cause actual results to differ materially from the content of our forward-looking statement for the reasons that we cite in our Form 10-K and other SEC filings, including uncertainties posed by the difficulty in predicting future outcomes. Joining us today will be QuantumScape's Co-founder, CEO, and Chairman, Jagdeep Singh, and our CFO, Kevin Hettrich. Jagdeep will provide a strategic update on the business, and then Kevin will cover the financial results and our outlook in more detail. With that, I'd like to turn the call over to Jagdeep. Thanks, John. Welcome to our earnings call for the second quarter of 2021. Earlier today, we published our shareholder letter summarizing the major developments from the last quarter. I'd like to briefly describe a few of the highlights here. First, and most significantly, we are excited to report that we have now built and are currently testing our first 10-layer cells in our commercially relevant form factor. In the shareholder letter, we published preliminary data from our cycle life tests and early capacity retention and cycling performance remain similar to what we've shown for single and four-layer cells. Our goal was to have 10-layer cells by the end of 2021, so we are encouraged to have our first 10-layer cells this early. To be more specific, the development of 10-layer cells has been the result of a number of concrete improvements to our separator manufacturing process. Taken together, these improvements result in a step change increase in both separator quality and consistency. As we baseline these improvements, we expect positive knock-on effects to accrue to our development process as we progress through our manufacturing scale-up roadmap. As we've said since first going public, separator quality and consistency are key technical parameters, and this step change improvement is an encouraging sign that our focus on this area is paying off. To put this achievement in context, it's helpful to think about how far we've come. In December 2020, we showed our first data on single layer cells. In February, we showed our first four-layer cells. To now be able to share an early look at full-size 10-layer cells in July is very exciting to us, and we believe that the rapid rate of progress to this point bodes well for our development plans going forward. In another important development, we made and tested our anode-free lithium metal cells with a low-cost iron phosphate, LFP cathode, and confirmed that our chemistry and cell design is compatible with LFP. We believe this demonstrates the commercial flexibility of our cathode-agnostic solid-state lithium metal platform, which allows us to extend our product offering to a broad spectrum of the automotive market. In addition to these exciting technical results, much of our focus this past quarter has been on installing high-volume manufacturing and automation tools on our engineering line as a precursor to the build-out of our pre-pilot QS-0 facility. Such high-volume tools will allow us to further refine our manufacturing process, reduce variability, and feed our learn fast and iterate development process as we continue to work towards accomplishing our year-end goals. For example, we expect our high-volume, continuous flow heat treatment equipment to improve separator production throughput by an order of magnitude over the current process, as well as to significantly improve the quality of our separators as a result of more uniform processing. Just as important as our tools is our team. We've grown our company headcount by 20% over the last 90 days with a particular focus on attracting experienced high-tech manufacturing professionals. Among many others, we are pleased to welcome Celina Mikolajczak from Panasonic and Tesla as our VP of Manufacturing Engineering, and Clayton Patch from Micron Technology, Inc. and IM Flash Technologies as VP of Manufacturing. Our focus for the rest of 2021 is to build many more 10-layer cells to collect performance data and comprehensively characterize and optimize the cell design. In addition, we will continue working closely with Volkswagen and other customers as we push towards next year's customer sampling targets. Lastly, I'd like to take a moment to look at the bigger picture. This last quarter has seen an incredible volume of electrification announcements from automakers all over the world, with a growing number committed to phasing out combustion engines entirely. This comes as governments across the world are tightening restrictions on combustion engine vehicles and accelerating the pace at which automakers are required to switch. The EV market is seeing enormous growth in major markets, this growth looks set to continue over the short and long term. It's also important to keep in mind that EV sales are still less than 5% of all new cars sold. In some ways, the first 5% is the easiest to address with current technology. We believe that selling EVs to the remaining 95% of car buyers will require batteries that are not just marginally better than today's standard, but significantly better on key metrics such as range, charge time, cost, and safety. We believe the automotive market is starting to appreciate that incremental progress in battery technology will ultimately be insufficient to meet the requirements of drivers, necessitating step function improvements like those delivered through our anode-less lithium metal approach. Although there are challenges ahead of us, we are confident that we have the team, resources, and fundamental technology to overcome them, and every major hurdle we clear becomes a moat that strengthens our competitive position in the race to capture the next-generation battery market. In short, we are encouraged by the results we've seen this quarter, and we are excited to continue our progress towards commercial deployment of our technology and share more developments with our shareholders in the months ahead. With that, I'll hand it over to our CFO, Kevin Hettrich, to say a few words on our financial performance before we open it up to Q&A. Kevin? Thank you, Jagdeep. In the second quarter, our operating expenses were $50 million. Excluding stock-based compensation, operating expenses were $38 million. This level of spend was in line with our expectations entering the quarter. The full year, we expect cash operating expenses to be in the range of $130 million-$160 million, consistent with our guidance from last quarter's earnings call. CapEx in the second quarter was approximately $30 million. For the full year, we now see CapEx tracking higher than previous guidance of $130 million-$160 million, primarily due to a pull forward of the timing of QS-0 pre-pilot manufacturing line spend from 2022 into 2021. This reflects progress setting specifications, engaging with vendors, ordering equipment, and advancing facility projects. Our overall spend for QS-0 remains in line with our previous expectations. Our plan to end this year with greater than $1.3 billion in liquidity also remains unchanged. We'll update CapEx guidance for 2021 in the Q3 shareholder letter when timing on payments related to QS-0 comes into clearer focus. QS-0 is a vital step in our growth. From QS-0, we plan to produce battery cells for R&D test cars in 2023 and to establish a mass manufacturing system blueprint. Learnings from QS-0, we believe, will help de-risk our QS-1 scale-up. With respect to cash, we spent $63 million on operations and CapEx in the second quarter. We'll update guidance for full year free cash flow burn in the Q3 shareholder letter. Our company achieved progress on development and manufacturing while maintaining a strong balance sheet. We ended the second quarter with more than $1.5 billion in liquidity. We continue to expect to exit 2021 with over $1.3 billion, sufficient capital, we believe, to fully fund QuantumScape through initial QS-1 production, and additionally contribute to the subsequent QS-1 expansion. Our GAAP net income for the quarter was $81 million, including the impact of $131 million in non-cash fair value adjustment of the assumed common stock warrants. Excluding this non-cash adjustment, the net loss for the quarter was approximately $50 million, in line with expectations. We're excited about the progress this quarter and look forward to the opportunities ahead. We'd like to thank our investors for supporting our mission to commercialize our solid-state lithium-metal batteries and to help accelerate the mass market adoption of electric vehicles. One final comment regarding the recently announced public warrant redemption before passing back to John. Of the 11.5 million public warrants originally issued, most have already been exercised. As of the recent redemption press release date, only approximately 1.5 million remain outstanding. We believe redemption of the public warrants is an important step to further simplify and streamline our capital structure. For more information, please review our press release and 8-K filing on July 23rd. With that, over to you, John. John? Okay, thanks, Kevin. We'll begin today's Q&A portion with a few questions we've received from investors over the Say app and in our IR inbox. Our first question is: If you had to convert a traditional lithium-ion manufacturing facility to a QuantumScape facility, how would you do it? How much would the cost savings be versus building a new factory from scratch? Yeah, John. The first thing I'd say is that given the demand for batteries that we're currently seeing and the supply constraints, no one is really talking about repurposing factories. Current factory capacity will continue to be needed going forward, and new factories need to be built each year to meet the growing demand. Our default plan will be to build new factories for QS-1 and QS-2. But if you did want to repurpose lithium-ion factories, the main changes would be, first, we don't need an anode manufacturing line since our design is anode-less. This would allow us to reuse the anode coaters as cathode coaters, increasing the capacity of the line, without adding cost. Second, we could also reuse existing stacker tools for prismatic cells to make our cells. Finally, we could simplify the formation area since we don't have the need to form an anode SEI, given we don't have an anode. We believe we'd be able to leverage most of what you'd find in a lithium-ion factory, and get commensurate cost savings if we were to go that route. Okay, makes sense. What gives you confidence you'll be able to manufacture at scale? What processes are unproven or require changes versus today's lithium-ion facilities? Fundamentally, the main difference between our approach and conventional lithium-ion manufacturing is that we have this unique ceramic separator that enables us to use a pure metallic lithium anode. What gives us confidence that we can manufacture at scale is two things. First, the fact that this separator is based on precursor materials that are earth abundant with multiple suppliers on multiple continents. Second, that the tools we use to make the separator are already used at scale in either the battery or ceramics industries today, so we can leverage the scale of those industries without requiring new custom tool development. The remainder of these questions are from the Say app. Sales of stock by key team members are being perceived by some as extreme, with one shareholder claiming that our CTO, Tim Holme, sold 50% of his holdings, noting that our Chief Legal Officer sold shares, and our Chief Development Officer sold two-thirds of his shares. The question becomes, is there anything to read into those share sales, and can you comment on the size of the share sales? John, first, the percent sale references in the question are not accurate. To correct the record here, as of the end of the quarter, Tim, our Co-founder and Chief Technology Officer, holds 96% of his prior holdings as of June 30th, 2021. Mohit Singh, our Chief Development Officer, holds 86%, and Michael McCarthy, our Chief Legal Officer, holds 83%. Yeah, if I can just add, as I mentioned on our last call, outside of satisfying tax obligations, I remain committed to not selling any shares until we've delivered a prototype in a commercially relevant form factor to Volkswagen. Okay, our next question, how soon will you be going into production, and can you comment on the ongoing discussions you're having with automakers? On the production side, our plans are to go into pre-pilot production with our QS-0 line in 2023, followed by commercial production in the 2024-2025 timeframe. On the customer front, I'll say a couple things. One is inbound interest remains strong. Second, in fact, because demand appears to be higher than our near-term plan capacity, we actually won't be able to work with every prospective customer that's expressed interest. This allows us to be a little more strategic about which customers we choose to work with. Finally, I'll add that our policy is not to discuss customer deals until they're final. In addition, many OEMs consider their battery supplier decisions to be proprietary, so out of respect for them, we usually let them be the ones that announce their partnerships. Since Tesla's 4680 lithium-ion battery cell is advertised as having similar performance to your battery and is less likely to cause a fire versus an internal combustion engine, what's the real advantage of a solid-state cell? Yeah. The Tesla 4680 incorporates a number of incremental advances, including things like higher nickel content on the cathode side, cell to pack design, dry electrode processing for cathode manufacturing, and so on. I'll note that all of these cathode side improvements are available to us as well, since we're cathode agnostic. When you couple these improvements with our lithium metal anode, you still end up getting better energy density than lithium ion because of the elimination of the carbon or silicon anode. We don't believe you can do better than an anode-less lithium metal cell on metrics like energy density at fast charge and cost, because we believe the conventional carbon or carbon silicon anode is in fact a key limiting factor for all those parameters. What do you see as the most significant technical challenges to market acceptance and to full-scale production? The main challenge is scaling up our separator production, which as I mentioned earlier, we believe is achievable since the precursor materials are earth-abundant commodities and the production processes and tools are already used at scale today. The second challenge, of course, was to increase our layer counts, but our announcement today makes clear that we've already made strong progress on that front, so we feel good about our ability to increase layer counts. Okay, our last question from the Say app. Do you plan to test your battery from a third party to prove all the claims in your reports are true? As we've said before, we believe the best independent testing is testing conducted by our prospective customers, and of course, we've had multiple customers test our cells in their labs. However, some investors have still asked that we use a third-party lab to validate our results. To be responsive to those investors, I'll say that we have submitted our cells for independent testing, and we'll share results when we have them. I want to point out, though, that we don't intend to do this for every generation of our cells, as our focus remains on providing cells to our customers. Thanks so much, guys. We're now ready to begin the Q&A portion of today's call. Operator, please open the lines for questions. As a reminder, to ask a question, you will need to press star one on your touch tone telephone. Your first question is from Rod Lache of Wolfe Research. Your line is open. Hi, everybody. I wanted to ask you two different questions. One is just, you characterize the 10-layer cell as evidence of improvement in manufacturing. Can you maybe explain that a little bit for us? In the lab, can you maybe characterize what you are learning on manufacturability and specifically any kind of specific data points on the progress you're making on speed of production and yield, just given that you just said that the second challenge is scaling up manufacturing? Sure. Hey, Rod. On the question, let me answer the question about the manufacturing improvement first. At the core of the improvement is, as we mentioned, is better uniformity, better quality, better consistency of the films. That, it turns out, is one of the critical parameters for better performance on essentially all the metrics that we really care about from cycle life behavior to power, low temperature, all those things are improved if you have better quality and better consistency in your films. This new process, which represents, as I mentioned, a combination of a number of improvements on the manufacturing side allowed us to make better films. Better films give us, A, better yield, which means more of the films that we start are usable. That helps us deal with the fact that a 10-layer cell requires 10 times as many films. Having more films that are good helps there. Secondly, as you stack up multiple films, if you have non-uniformities, then you can compound the effect of those non-uniformities. Better quality helps you better achieve 10-layer cells. That was the question about the 10 layers. I think, Rod, if I recall, you also asked about scale-up plans, is that right? The speed of production and yield, just any metrics that you could share with us on the progress you're making there? Yeah. One thing we did say in the letter, if you noted it, was that the new tools that we're installing, for example, this new heat treatment tool that we referred to, in fact, there's a photo, in fact, in the letter of the tool, you can see just the physical size and scale of it. These are big industrial kind of tools. That's literally an order of magnitude more throughput than the tools that we're currently using in our baseline process. Those are the kinds of step function improvements in throughput that are needed to be able to both provide enough cells for multi-layer development, as well as provide higher volumes of completed cells to both test internally and provide to our customers. That's the reason why we feel like the scale-up progress has been strong over the last quarter. Okay. Thanks. Just secondly, if I can, the comments you made on this iron phosphate with your technology were pretty interesting. In the market today, I think that LFP cells are 20% less expensive, like $80 a kilowatt hour versus $100. Would it be the same for your cell? If you were targeting $70 per kilowatt hour cells in 2027 with nickel, could it be in the $50s for iron-based? Is that something that you're sensing from your customers expressing interest? I don't think we've given precise guidance on our cost structure, but here's what I can provide. There's two different parts of the cost story that could be helpful for your models. First of all, of course, as you already know, Rod, on the anode side, we believe there is no lower cost anode than an anode-less lithium metal design because there's no anode at all. You can't get lower than zero cost there. When you couple that with an LFP cathode, you then get additional benefits because now the cathode active material is also relatively low cost. The prices, as you know, of the actual active materials, the spot prices fluctuate over time. Recent prices for normal NMC cathode material may have been, I don't know, in the low $20s, in terms of dollars per kilogram. The comparable price for LFP cathodes, if I recall correctly, recently has been hovering in the mid-single digits dollars per kilogram. That's a pretty significant difference in cost. Given that you've already eliminated the cost of the anode with an anode-less design, the cathode ends up being a larger fraction of the overall cost. Having a lower cost cathode actually really helps you there. To net it out, I think what we believe is that the cost advantage we laid out in our original model of 15%-20% lower cost than conventional lithium-ion cells because of the anode, we think that roughly holds even for the LFP cells. The beauty of coupling a lithium metal anode-less design with LFP is a couple things. One is you end up with literally the lowest cost possible design that we know of. You take a zero cost anode and couple that with a very low-cost cathode, so you get a very cost-advantaged cell. Secondly, you take the fundamental disadvantage of LFP, which of course is that it doesn't have a lot of energy density. You address that directly by coupling with lithium metal and taking it up to a range where now it's approaching that of today's conventional NMC-based battery. It's a really beautiful combination, right? I n one fell swoop, end up with, we believe, the lowest cost solution that you can have for these kinds of systems. B, you simultaneously address the biggest weakness in LFP, right? We reported this demonstration really to help the market understand that we are cathode agnostic. We have the ability to work with whatever cathode our OEMs want. This is not some kind of battle or race between LFP and lithium metal anode. Those are completely different axes of the cell, multi-dimensional space. We can advance on both those axes simultaneously. To the extent that LFP becomes important for a certain sub-sector of the automotive market, we believe that a lithium metal anode-less design paired with that LFP becomes the best possible LFP, and that's what's exciting about that result. Great. Thank you. Absolutely. Our next question is from José Asumendi of JP Morgan. Please ask your question. Thanks very much. José from JP Morgan. Hi, Jagdeep and Kevin. Couple of questions, please. The first one with regards to QS-0. Can you give us some rough timing in terms of by when do you expect to have installed most of the machinery for QS-0? By when do you expect to have spent most of the CapEx for that facility? Second, Kevin, can you give us a sense of how many people you're planning to bring on board by the end of the year? Your head count is rising rapidly, but sort of end of the year, where do you plan to stand? And three, for Jagdeep, having some interesting hires, can you talk a little bit about the background from Celina coming from Panasonic and Tesla, and how she can help you industrialize the production and accelerate that transition to QS-0 and QS-1? Thank you. Yeah. José, thanks for the questions. This is Jagdeep. Let me go ahead and take the last one first because it's relatively straightforward. I'll hand it over to Kevin to take the first two. We're delighted to have Celina on board. As you know from her background, she ran the manufacturing engineering group at Panasonic at the Gigafactory in Reno, which we believe is one of the largest, if not the largest operating battery facility in the world. She's not just a manufacturing expert who's worked with super high volume production lines at Panasonic. She happens to be a manufacturing expert who's a battery expert, because her previous career before this was very deep into batteries. She started out working at what's now called Exponent, what used to be called Failure Analysis Associates, which was one of the pioneers in battery safety analysis. She obviously went over to Tesla, where during her tenure there, they introduced many of the key models that we associate with Tesla now. She went over to Uber. She's got just an amazing combination of really deep understanding of batteries. She can engage with our engineers at the engineering level, but she also understands all of the complexity and sophistication that you need to run a super high volume battery line where you're making millions of cells on the line. At that scale, little things that you never think about have to be addressed explicitly. Things like, are the blades that you're using to cut your films on the right sharpening schedule? Those things get blunt over use. Do you have supply chain in order? There's just a lot of things that you don't have to worry about when you're doing small scale manufacturing that become real issues that can hold up the line. Having somebody on board who's dealt with all those things firsthand in one of the world's highest volume battery production lines is fantastic. Now, when you couple that to Clayton Patch, Celina will run manufacturing engineering, which is the group that does all of the engineering for the tools and processes that we use, and then Clayton Patch will run the actual production line. Clayton's background comes from semiconductors. The reason why that's relevant is semiconductors, of course, are very aggressive at using things like metrology and getting data on the processing of the materials to be able to keep the process within the control limits. A lot of that expertise is going to be very relevant as we scale up the separator line. Even though it's a ceramic line, a lot of the metrology techniques we're using, we can leverage some of the techniques used in semiconductors to get tight controls over operating constraints and parameters. Those two are just examples of the types of hires that we're making that we think are really going to enhance our ability to execute successfully on this next phase of our journey. Let me turn it over to Kevin to address the first two questions you asked. José, thank you for the questions. Recall the first question was around some of the timeline for QS-0. To answer the question on timeline and operation, we've given guidance that QS-0 will produce battery cells for prospective customers to be put into R&D cars in 2023. Working backwards, we'll need to have most of the machines installed and the CapEx spent in 2022. As for the second question around headcount, we mentioned in today's letter that we have headcount of just over 400. We haven't given guidance as to headcount for the end of the year, but you could get in the right zip code by looking at our cash OpEx and to extrapolate it with that growth. In the quarter, we spent $34 million on the OpEx, excluding depreciation and stock-based comp, and we stick to our guidance of $130 million-$160 million by year-end, which implies that that number will be increasing. If you put those two together, you'll get in the right zip code of total headcount. That's very clear. Thank you very much for the color. Thank you. Thank you, José. Thanks, José. Our next question is from Adam Jonas of Morgan Stanley. Please ask your question. Thanks very much. A really interesting call. I think that the LFP testing again also potentially really significant. Can I ask for clarification? You said you believe that using your form factor and LFP battery could achieve 600 Wh/L-700 Wh/L. Curious if you could give us a range of gravimetric density on that as well per kg? Yeah, I'm pretty sure we had those numbers, obviously, because we did the modeling. I don't have them handy yet, Adam, but we're happy to make those available as well. It's a great question. I would expect those to be roughly comparable, because you are eliminating the anode layer of the traditional LFP cell. We can certainly get back to you on the precise metrics there. Okay. Could you also remind us the cobalt content of your cells versus conventional? I understand that's going to be cathode chemistry dependent. Sure. Yeah, could you give us just some of those? Yeah, absolutely. Because there's so much focus around cobalt. Yeah, help us out again. Yeah. The current chemistry that we've been using is the 8-1-1 chemistry. That would be 10% cobalt. However, there are new chemistries that are being offered by the cathode providers that are even lower cobalt content than that. There are some, for example, that are 7% or 8% cobalt. That number continues to decline for two reasons, as obviously you know. One is it improves the cost profile if you have less and less cobalt. Two, it also improves the, I guess, the ESG profile if you don't have cobalt that's mined in certain places that aren't the best working conditions. That's an independent trend that's going on. The benefit of LFP, as obviously you pointed out, it's a very significant announcement, is that you also eliminate the nickel entirely, and then having an iron-based cell, iron is obviously super abundant material, super low cost. That's what allows LFP to be in that mid-single-digit dollars per kilogram. The most important takeaway, Adam, really is it's a cathode agnostic design, right? The fundamental breakthrough we have is a solid-state separator that enables an anode-less lithium anode. You can couple that with whatever cathode happens to meet the needs of the application. Given the automotive spectrum is so broad from super high-end premium vehicles that have high requirements in terms of range and fast charge, as well as low-end vehicles where price is the number one selling criteria, and that level of breadth can be fully addressed in a cathode agnostic architecture like ours. Okay, just one final one from me, Jagdeep. You mentioned I think in one of the prepared questions that you're going to submit your cells for independent testing, and you're going to provide the results at some time in the future. Can you tell us what testing body and when we might be able to see these results? Again, understanding that this isn't going to be for every iteration, but it does seem, I think it would carry a lot of weight. The fact that you'd even consider to do this suggests that you believe it carries some weight as well. Yeah. This is a sort of a certified accredited kind of a battery test lab. We actually have already submitted those cells for test. Testing does take time, even at 1C rates, it takes several months to get up to a few hundred cycles. When we have those results, we will definitely publish them. You're right. Even though our belief, as I said in the call, is that what matters the most is the testing that customers do in their labs. I think some investors do feel more comfortable if there's a third-party lab that's tested, and that's why we're doing this. We will definitely publish those results. Thank you for appreciating the point that we don't intend to do this for every generation of cell. I think having the basic validation could be of value. These were four-layer cells or one layer? No, these are going to be single-layer cells to just validate the core capabilities of what we call the uncompromised test conditions, right? can you cycle at unelevated temperatures, not super high temperature, not super high pressure, high rates of charge and discharge on the cycling, like 1C, and so on. We'll publish all that along with the data going forward. We didn't want to get ahead of ourselves and start talking about that too much given that we don't have the results in yet, so. Thanks, Jagdeep. Absolutely, Adam. Thanks for the question. Our next question is from Gabe Daoud of Cowen. Please ask your question. Hey, afternoon, guys. Thanks for all the prepared remarks so far. Maybe just on the 10-layer test, 10-layer cell. Maybe Jagdeep, you kind of answered this with the last question, but close to 40 cycles or so, when should we expect to see that number get closer to, I guess, the 400-500 cycle number, and then ultimately get to the 800 number that you guys have targeted for obviously automotive applications? Yeah. I think our target remains end of the year. I think the main point we, I think, made on the call is that having those cells actually be successfully made and go on test and have encouraging early results gives us some level of encouragement that we're tracking to that end of year goal. There is work to be done, and primarily that work involves making a lot more of these cells so we can characterize the performance and the behavior of these cells. The typical process that we use is, we make a lot of cells, we get the data, we use that data to either improve the design and the manufacturing aspects of the cell, and then retest. All that, those are the kind of things we expect to do between now and the end of the year, to basically turn that, those 4 cm cells into what we call baseline cells. Also in the letter we mentioned this learn fast kind of a model, and that's really what we're referring to there is, the idea is to do statistically valid sample sizes that we test so we can actually draw conclusions based on the results of those tests that allow us to modify the design in a way that moves us forward on the vector that we are interested in moving on. Got it. Okay, thanks, Jagdeep. That's helpful. Just a quick follow-up, just going back to the LFP cathode. Obviously, a number of OEMs have highlighted the potential to use LFP for lower cost entry models. Was the decision to test your cell with an LFP cathode based on a specific request from a potential partner, or was it really just to highlight again, the cathode agnostic nature of the separator? Just trying to get a sense if this was really more of a pull kind of a request, I guess. Yeah, I understand the question. As I mentioned, we don't talk about customer specifics that aren't finalized or announced, so I won't be able to answer that particular question. I think, the general idea that there is a role for a low-cost cathode in the automotive market is really what we're responding to here. We've been focused on NMC 811 primarily because that kind of highlights the energy density and fast charge benefits that we've been talking about. Given the sort of the resurgence of interest in LFP, we really felt like we had a contribution to make here. Again, remember, as I mentioned earlier, LFP has a number of advantages over the higher energy cathodes, right? It's obviously lower cost, it can be more thermally stable, it can have better cycling performance. It can even be higher power density depending on how you design the cell. It has one big disadvantage, which is that it's basically low energy density, and that hobbles its applicability to many applications. The reason why we wanted to do this demo is make clear that you could take that low-cost chemistry, derive the benefits of the low cost and the stability and the thermal safety and so on, and just couple that with this anode-free design, that directly addresses the biggest limitation, that's energy density. The idea of a really low-cost design that happens to be roughly in the same ballpark as today's NMC type chemistries, many OEMs, I think, would consider that to be a pretty exciting product offering. That's the reason why we did that demonstration. Got it. Thanks, Jagdeep. Absolutely, Gabe. Thanks for the question. Our next question is from Ben Kallo of Baird. Your line is open. Hey, guys. Thanks for taking my questions. Jumping on the LFP, just one final time. It's always been a cathode agnostic design, you're basically just telling us that it works with an LFP cathode. It hasn't been, like, a change or anything like that. Is that correct? I missed the last part of your question, Ben. It hasn't been what? If you're emphasizing it because of the resurgence or if there was some kind of change in testing, because I thought that it was always a cathode agnostic design. You're absolutely right. It always was a cathode design. It's just that we just didn't want people to think that somehow QuantumScape was synonymous with NMC because our unique contribution is this lithium metal anode-less design, which is enabled by, of course, the solid-state separator. We've said before, as you pointed out correctly, that we're cathode agnostic, but having the actual data where we show actual cells constructed with LFP cathodes and our lithium metal anode and solid-state separator, we think just hammers that point home. Those are both interesting cathode materials, and will both have a role to play over the next many years going forward. Okay, great. On the headcount increase and congratulations. Could you just talk about recruiting in this type of environment with battery capacity across the board being experienced radically? Yeah. We've actually had fairly good luck with recruiting. We said we grew 20% in the quarter alone, right? If you annualize that rate, that's a pretty rapid rate of growth. We hired a lot of people during the pandemic era, the year last year. We've been fortunate to see a lot of great candidates come through, so we were able to really keep the level of quality of employees that we hire really high. I think that if you are an engineer or scientist working on next generation batteries. My personal opinion is there's really no better place to be than QuantumScape because this is not incremental stuff, this is disruptive stuff. We've shown that the core capability is there based on the data we've already published. Because we're so well-resourced, we have a really extensive lab in terms of not only battery manufacturing capabilities but battery test and characterization and metrology capabilities with a lot of tools that scientists, engineers wouldn't readily have access to at many other organizations, whether they're companies or even universities. We feel like having the opportunity to work in such a fully equipped lab that's doing cutting-edge work has really helped us attract some great candidates. The two that we spoke about at the senior level, obviously Celina and Clayton on the manufacturing side are just examples, but they're just really the tip of the spear. There's many people that we've hired over that last year that have allowed us to maintain our momentum going forward here. Lastly, just with the new entrants to the public markets and to the private companies fundraising too, has that changed behavior from your customers, or is it kind of like a pilot testing across all different products right now? Is that the stage we're in, and how do you see that evolving for people to pick their horses, I guess, for lack of a better word, to go with on the technology front? Here's the way we see it. I'll give you, obviously, our opinion. There's a few alternatives if you're an OEM looking for a next generation type of breakthrough chemistry. There's other solid-state-based approaches other than what QuantumScape is doing. For example, there's the sulfides, there's the polymers. The problem with those approaches is that none of them has really shown that they can prevent dendrites under the types of uncompromised conditions that we keep talking about. One hour charge and discharge, 25-30 degrees Celsius temperatures, three to four atmospheres of pressure as opposed to overly elevated temperature and pressures, 100% depth of discharge. Every other attempt that we've seen for solid state using other materials has not been able to cycle in those conditions. If someone has got that would be exciting news, but we haven't seen that. The second category is people that are just using liquids with lithium metal to try to make that work. It's easy to get results with liquids at low rates of power because dendrites are an exponential function of power. So at no power you can reduce exponentially. Conversely, at higher powers, that propensity grows exponentially. That's not even taking into account the impedance or the resistance growth that happens from the chemical side reaction between the liquid and the lithium metal. We think those approaches are not going to be viable for applications like automotive where high power is required. There may be an application for those in low power type scenarios. That would be the best-case outcome for a liquid-based lithium metal approach. Then the final, I think, category is a lot of people working on silicon, and silicon is a fine approach to incrementally improve the energy density of lithium-ion cells. End of the day, even if you had 100% silicon anode with no carbon, no binder, no electrolyte in it, just the mass of that silicon alone would double the mass of the anode because silicon has atomic number 28, lithium has atomic number seven. Even if you held four lithium atoms for every one silicon atom, you're still doubling the mass and the weight of that anode. Really, at the end of the day, if you have a working lithium metal anode-less design, we honestly just don't see a role for any other approach. Our real challenge is not whether there's a better approach out there, but simply whether we can execute on the vision that we've laid out and get it to commercial production. That's really what we're focused on. We think that the progress we're reporting on this call is an encouraging sign. It's obviously not done. We're not claiming that we're shipping, but we believe that it's a signal that the team is in fact, knows how to execute. If the team keeps doing that, I think we have an opportunity to really transform the sector. Thank you very much. Absolutely. Your next question is from Mark Delaney of Goldman Sachs. Your line is open. Yes, good afternoon. Thanks for taking the questions. First, I was hoping you could discuss more on the manufacturing improvements that you talked about relative to separator manufacturing. Nice to hear about some improvements that you made on the manufacturability of the separator. Could you provide more details about how similar the current manufacturing progress and tool set is relative to what you think you may use in volume production for separator manufacturing? Yeah. Let me address that in two different parts. I think, obviously, we keep the details of the separator process fairly close to the vest because that's really some of our crown jewels, as you obviously know. I think the net effect of the improvements that we're talking about was to get films that are high quality. By quality, we mean uniformity. There's lots of different non-uniformities that will affect the performance of your separator. The industry, the broader industry that's working on these types of materials doesn't fully understand the significance of these non-uniformities. I can tell you, there's everything from compositional non-uniformities to morphology non-uniformities, to defectivity non-uniformities. These are all things that affect the performance of your films. By film, I mean the separator ceramic. The improvements that we're talking about were some concrete changes to our process that led to meaningfully better outcomes in terms of quality and consistency, and that's a pretty important point as well. Not only do you want high-quality films, but you want to be able to get those high-quality films very repeatably, so you get better yield. Those are really the net effect of the improvements we're talking about. Then relative to the tools that we're using, if you look at the photos in the shareholder letter, that is an image of a continuous flow heat treatment tool. Every ceramic has to go through a heat treatment step. Most ceramics today, or a lot of ceramics today, are done in batch processes for heat treatment. Those processes, we believe, are not very scalable. What we have here is a continuous flow process. The separators run through on a conveyor belt, this heat treatment tool, where you have different zones that can apply a different heat treatment profile as the films run through. That really is what we believe allows us to have a scalable process, is that we don't need these batch heat treatment tools. Those are the two key points I'd make to answer your question, Mark. One is the net effect of the improvements we're talking about was to produce better quality films with better consistency. Two is, on the scalability side, these continuous flow heat treatment tools that we are now deploying, we believe really allow us to increase the throughput and also, frankly, to further increase the quality, because we think these continuous flow tools have better precision in terms of the heat treatment profile that we can apply. That's very helpful. Thank you. For my second question, I was hoping to talk about the testing the company had talked about last quarter about cells with zero externally applied pressure, which I think could be relevant potentially for cells that could be sold into the consumer electronics industry. I apologize if I missed it, but I didn't hear an update on testing of cells with zero external pressure applied. Is there any progress you can share on that front? Thank you. Excuse me, this is the operator. I apologize, but there will be silence as the speaker's line got disconnected. We will resume shortly. One moment. Then press the pound key. Your line will then be placed on hold until the conference- Kevin, do you want to hang that up until he does? Operator, can you hear me? Presenters, we are now back into the main conference room. Hey, folks, I apologize for that. Looks like for some reason the line got dropped. Are we back on? I assume, operator, we're back on, right? Yes, we are back in the main conference room. Presenters, you may continue. Mark, I don't know if you're still on, but did you hear the answer to your question? This is Mark. I'm not sure if you can hear me, I had asked about potentially providing an update about the testing of cells with zero external pressure. I don't know if you got that question or not? Yeah. I didn't hear any update. Yeah. Okay. Yeah, thank you. Thank you. Sorry about the drop. I guess technical difficulties can happen on these calls. Thanks for bearing with us, guys. I did answer the question, but it sounds like it got dropped right at the beginning of my answer. I'll very quickly summarize the answer. The answer to the question is yes. The reason why we showed that zero pressure data was exactly to be able to make clear that we can address the consumer application where applying pressure is not an option, because there's not enough volume in those consumer devices. Having said that, we also said that we don't want to get distracted from our primary focus, which of course is the automotive sector. That focus has served us well so far. We want to continue to execute on that automotive application before we go too far down the path with consumer devices. The fact is that because we've shown that the system can work under zero pressure, those applications are within the scope of the ones we can target. I think you had another question as well, Mark, besides that one. What was the second question you asked? No, that was it for me. I appreciate all the help. Okay. Thank you. My apologies for the drop. It looks like everybody got dropped, our audio got dropped, but we're back on. I also want to say that the team did get an answer on the LFP chemistries, and Kevin can address that very briefly. Sure. Adam, you were asking about the gravimetric improvement with the QuantumScape approach. We understand conventional lithium-ion LFP cells are around 170 Wh/kg, the best cells right now. For the QuantumScape design, combining a solid-state separator and lithium metal anode with an LFP cathode, we believe we would be in the mid 200s Wh/kg. Okay, we can move on to the next question. Yes, our last question is from PJ Juvekar of Citigroup. Your line is open. Yes, hi. Good afternoon, Jagdeep. Good afternoon. You say that you are cathode agnostic, whether it's LFP or NMC, et cetera. Each of those cathodes have different lithium and nickel content. Does that change the lithium-ion flow in forming the lithium anode in the battery? If it does, how did you overcome that issue? Again, the beauty of the approach is that the lithium that makes up our anode is the exact same lithium that's normally cycling back and forth in a normal lithium-ion battery. The only difference is that instead of that lithium intercalating into or diffusing into that carbon particle or silicon particle, as the case may be, there is no carbon or silicon to intercalate into, so it simply forms an electroplating of pure metallic lithium. Relative to whether there's any difference in the flow of lithium, by definition, both the LFP chemistry and the NMC chemistry with any lithium-ion chemistry, is going to be able to have lithium ions come out of the cathode, flow through the electrolyte and get to the anode. Only difference here is what happens when that lithium gets to the anode, and in our case, that lithium just forms a layer of pure metallic lithium. In the case of lithium-ion, the lithium that goes to the anode is held in place by the scaffolding, if you will, of the graphite anode. It takes six carbon atoms to hold one lithium atom, and each of those ions is held in place. In fact, that's one of the reasons why it's called lithium ion, is because that anode is kind of held in place in this ionic state. Whereas in our case, by doing away with the carbon and silicon, the lithium ions can actually meet each other and form a metallic bond. That's why it becomes lithium metal. Yeah, it is cathode agnostic, and it's the same lithium that would otherwise be diffusing into the anode that now is simply forming that layer of metallic lithium. Okay. I guess my question was a little different, but maybe I'll come back later. With this LFP cathode compatibility, how does the size of your TAM change in terms of your total market? I think the way to think about this is that there is a overall market for the transportation sector in terms of the number of vehicles sold every year. There is a wide range of vehicles that have different requirements. By enabling LFP as a cathode, we can address a broader spectrum of that overall market. There are fewer applications within the vehicle market for which this lithium metal anode-based approach would not be a fit. You could argue that without LFP, there are some low-line applications where cost is the only thing that matters, even if the energy density isn't at world-class levels. With the LFP solution that we have, we can serve those low-cost applications while improving the range and the energy density that they get with the LFP battery. Lastly, you mentioned that LFP, we know that has lower power density, which means range. How much can your battery improve that range? Thank you. Yeah. If you look at the shown letter, conventional LFP, we said volumetrically is on the order of 400 or so watt hours per liter. We believe with a QuantumScape lithium metal anode design, that number gets pushed up to between 600 Wh/kg and 700 Wh/kg. Which is significant, not only because it's more than the lithium iron phosphate with carbon numbers, but because it's actually now approaching the range of conventional NMC batteries. It's a very exciting combination of low cost and without the penalty of energy density that you'd have in terms of LFP plus carbon. That's one of the reasons why we're excited about that demonstration. I think really the two demonstrations we announced today, the LFP with lithium metal and then the 10-layer cell together, I think are both very encouraging in terms of our ability to serve the full market. Thank you. Absolutely. There are no further questions on queue. Presenters, you may continue. I want to thank everybody for taking the time to join our call today. As I just mentioned, we're excited about the results that we shared today. The 10-layer cell result we believe provides strong evidence that we are tracking well to the scale-up plans that we laid out earlier this year. The LFP result demonstrates that the system is in fact cathode agnostic, and we can leverage this low-cost cathode and turn it into a more useful, higher energy, low-cost cathode. We are going to stay focused on the task ahead over the coming quarters and years. We look forward to reporting further progress on the next earning call. Thank you all. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.