Solid Power, Inc. Q1 FY2024 earnings call

Electrolyte

• Continued growing interest in electrolyte powder, with shipments to existing and new potential customers (10 potential customers outside existing joint development relationships).
• Invested in new electrolyte R&D lab targeting midyear completion to optimize production, reduce cost, and develop future generations of electrolyte.

Cell Development

• Team refining A-2 cell design with goal of delivering to partners by end of 2024 to improve performance; addressing thermal runaway issues with minor tweaks to chemistry, design, and manufacturing process.

Partners

• Collaborated earnestly with SK On since January, hosting them for tech transfer in April and nearing design freeze on SK On's new EV cell line, with plans to complete line in first half of 2025; established team and offices in Korea.

Investor Events

• Making good progress on planned investor events for later in the year, with details to be shared in coming months.

First quarter revenue was just under $6 million, primarily from solid performance on the BMW agreement. Operating expenses for Q1 were $31.7 million, resulting in an operating loss of $25.8 million and a net loss of $21.2 million or $0.12 per share. The balance sheet ended the quarter with total liquidity of $379 million in cash, marketable securities, and long-term investments. Revenue contribution was mainly from the BMW agreement, with other activities contributing to the overall financials.

2024 Guidance

• Revenue still expected to be in the $20 million to $25 million range, including remaining revenue from BMW agreement and expected revenue from new SK agreements.
• Total cash investment for 2024 expected to be in the range of $100 million to $120 million, with operating cash investment $60 million to $70 million and CapEx $40 million to $50 million.
• Repurchased 5 million shares of common stock for just over $8 million in the quarter, with continued evaluation of future repurchases.

Risks

• Battery technology development is challenging, with thermal runaway issues being minor tweaks but affecting the complex interplay between chemistries, mechanics, and system environment of the battery system, requiring adjustments in multiple areas when changes are made.

Q: You had mentioned you have shipped electrolyte to 10 potential partners beyond the 3 that you've already mentioned you're working with. Those 10 partners, could you maybe kind of bracket for us, are they auto OEMs or battery folks? And maybe some sense as to the size maybe combined of what kind of market share those autos or batteries may have or just some sense as to how big if they all signed up to book a Solid Power, the long-term opportunity may be there.

A: Mike, thanks for joining. Yes, it's a combination of battery OEMs and EV OEMs. I would say it's skewed more towards battery OEMs in this period of time. But again, it's both. I honestly don't have a good assessment of what the total available market that they address would be, but it is a combination of very large known players in the market as well as some of the medium-sized players in the market.

Q: I also appreciated your details on the team's efforts to fix those issues with thermal runaway. Can you share with us, is the resulting cell going to look, cost or perform differently than what was originally put in or are [opportunities] very small to your knowledge at this point?

A: Yes. Great question again. Mike, I want to emphasize clearly that just a handful of cells that we had out of thousands that we've built, so just to keep the situation in scope but they're small tweaks that we're making. But I would like to once again reiterate that the battery system is really a complex interplay between the chemistries, the mechanics and the overall system environment that it operates in. And so those all have to be tweaked as you make a change in one area that it may affect the design. It may affect the manufacturing flow. And so just bear that in mind when we talk about changes, it's small tweaks to all those because of the interplay between them for the battery system.

Q: And perhaps one last one for me, and this is for Kevin. Is it early to ask about 2025 at this point? Do you think that your cash burn or expense run rate, as it tapers down a little bit around the year, could it maybe run similar to what you're seeing this year? Or are there -- is there a major step up or down for 2025?

A: Thanks, Mike. We're going to give longer-term guidance later this year at our investor event. But we -- I don't think our messaging has changed much from what we said originally, which is once we got through our SP1 mine install and SP2 electrolyte facility that our CapEx needs would tweak down and overall spend would go down. So we're not expecting any changes, but we'll give more detailed guidance here later this year.

Q: I guess just one follow-up on those, call it, 10 clients and the 2 new clients that you mentioned. You mentioned supplying powdered electrolyte, both on an ongoing basis to one potential client and one new potential client. What kind of feedback have you received from those companies? And can you give us an idea as to what industry they're in, either automotive or battery?

A: There's one customer that's in the battery space providing to the EV market, a major player in Asia. And then a second EV OEM also in Asia. So that was the description of the 2 that we referred to in the call. The feedback has been very encouraging, Brian. And the reason I say that is that we've been through multiple iterations of sampling with both of them. Then looking at the initial material saying, 'I like this characteristic about the electrolyte, but could you change this characteristic?' And go ahead and we do our modification or screening or what have you to get to that desired specification. We resample it, they reevaluate it, taking through their cell lines and then it's a rinse and repeat from there. We've had as many as 5 cycles with one of those 2 OEMs at this point. So it clearly shows engagement. It shows that there's interest, strong interest, I would say, as a result of the engagement. We're not through that process for either of them. I would expect that would continue through the balance of this year. As I said, the battery system is a very complex interplay. They both have their own cell designs. And so we're really tuning the electrolyte to make it perform the best in their cell design. And I believe that will continue through the balance of this year.

Q: Yes, excellent. And is there any update on work that you have been doing with BMW toward the development of one of their prototype cars?

A: Yes. So our collaboration with BMW continues to be very strong. If anything, it's gotten stronger in 2024. You may recall, we actually have expat engineers from BMW here on site in Colorado for extended periods of time. And they're working shoulder to shoulder with our engineers to come up to speed on our cell design so that they can duplicate that and then build on it in Parsdorf, Germany. I understand that equipment for that facility is coming in this year, and they have an objective to get that facility up and running in 2025. There's -- we're still in discussions with them about the demo car. We really don't have any further updates for you at this point, but we will share that with you as soon as we do have clarity about their plans. As you, I'm sure, know, they are going through a major platform change with the Neue Klasse coming out next year, and so they're doing a lot of internal planning. So there really is no further update at this point other than that close collaboration and our support of their line in Parsdorf, Germany as we go through this year.

Q: Okay. Excellent. And during the quarter, you retired nearly 5 million worth of stock. I think we're in agreement that shares are undervalued at this level. But as you're thinking about utilizing additional share repurchases, are you thinking about being programmatic? Or are you thinking about being opportunistic in nature? I guess how are you and the Board going about that?

A: Brian, we're thankful that we have such a strong balance sheet at this point, and we'll remain flexible here and consider all opportunities to buy our stock back going forward. At this point, we don't want to give too much detail because that could impact our ability to buy back, but we'll consider the opportunities here as they come up going forward.

Q: Okay. And just one final one, if I could sneak it in. It's very exciting that you're building out Korea. Have you received any kind of early feedback from team members on the ground there regarding the reception of Solid Power by the local companies?

A: Yes. The reception has been just what we hoped it would be. I think once you plant your flag and start to invest in a country like that, it's really our first global expansion, people take notice. And so yes, we are getting differential treatment from the various partners and providers, suppliers over there and also very close collaboration with the national labs. They have clearly acknowledged that being there makes a difference. And we have hired now 3 nationals already throughout program management, technical lead as well as HR over there to build out that core team. So the reception is exactly what we had hoped, maybe a little bit better than that I had expected on the government side, but it's really coming in nicely.

Q: Congratulations on all the success that you've laid out. I really only have one question at this point. And that is all these various samplings of the electrolyte and where the electrolyte is going, is it -- is this electrolyte being tested for any other kind of battery architecture besides the silicon EV cell? Or conversely, if not, can we see this as some sort of validation of the silicon EV cell architecture?

A: Yes. Good question, Jeffrey. We believe that it's being used in a variety of different anode-cathode combinations at this point. For obvious reasons, these OEMs generally keep those designs pretty close to their chest. So we don't have a lot of visibility, but we get some clues, if you will, based on what they're asking for in terms of the changes to electrolyte. And I think it's fair to say that there's a number of different combinations of anode and cathode that are being utilized with our electrolyte at this point. Again, it underscores the -- we're really indifferent to the anode technology and the cathode technology. It speaks to the versatility, I think, of our electrolyte and of our business model. We do, again, work closely with the customers, but don't have ultimate visibility right now on those designs.

Q: So just two quick ones on the SK partnership. Could you remind me, are you able to immediately start iterating off of your most recent A-2 battery with SK? Or does the nature of the JDA mean that you kind of have to start a few steps back and develop forward from there?

A: We will start with the A-1 design as a baseline because it's the most learned and then build from there. But our intention would be to have ongoing collaboration for the various designs as we go forward. They've expressed the desire to do that same thing, but it will start off of our base, which we built largely last year.

Q: Okay. All right. That makes sense. And are they going to be explicitly sourcing raw materials for you or having a direct say in raw material sourcing?

A: You mean for our precursors or do you mean for the other components in the battery? In the battery?

Q: Yes, sorry. Apologies, yes, for your precursors.

A: No. We solely control our precursor vendors and selection.

Q: All right. And just shifting gears. I'm curious, are you planning on requiring or dedicating additional prototyping equipment or electrolyte manufacturing equipment to support the new electrolyte chemistry? And I'm only asking because I assume you've already started working on some of this R&D around the new chemistry, and you feel the need to afford it its own lab space. So I'm just wondering if that's going to eventually come with maybe entirely segregated lines and things like that.

A: We have the DVPR line that will be coming on midyear here. Well, lab, excuse me, not line. That will advance the state of the art there, advance our production capability in terms of continuous flow versus batch as well as driving on our cost vectors. But once that's done, it's designed so that whatever results can be seamlessly integrated into our SP2 existing powder line. And one of the, I think, real highlights of this year has been the flexibility that, that line has demonstrated already. I mean it was designed for flexibility. But as we've gone through these customer sampling exercises I described previously, our ability to actually tune it very quickly to the customer requirements is really proven to be beyond even my expectations. So we don't envision a different line other than the DVPR lab that then will -- that material designs will migrate into the standard SP2 facility.