Good day and welcome to QuantumScape’s First Quarter 2023 Earnings Conference Call. John Saager, QuantumScape’s Vice President, Capital Markets and FP&A, you may begin your conference.

Thank you, operator. Good afternoon and thank you to everyone for joining QuantumScape’s first quarter 2023 earnings 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 as part of our quarterly update. Forward-looking statements generally relate to future events, future technology progress, or future financial or operating performance. Our expectations and beliefs regarding these matters may not materialize. Actual results and financial periods are subject to risks and uncertainties that could cause actual results to differ materially from those projected. There are risk factors that may cause actual results to differ materially from the content of our forward-looking statements for the reasons that we cite in our shareholder letter, Form 10-K and other SEC filings, including uncertainties posed by the difficulties 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.

Thank you, John. I’d like to begin with an update on customer prototype testing. As you may recall, last year, we shipped a variety of prototype cells for testing the prospective automotive and consumer electronics customers, including 24-layer A0s to the automotive sector and zero externally applied pressure single-layer cells to the consumer electronics sector. We are happy to report today the planned testing of 24-layer A0 prototype cells in one automotive customer is now complete. And in line with what we reported in our last shareholder letter, most sales performed very well, leading performance targets on fast charge and generally showing good cycling capacity retention and high economic efficiency, with capacity loss of less than 1% of 100 cycles. However, we have work to do to improve reliability as we transition from prototype to commercial product. Similarly, on the consumer electronics front, we can report that customer testing has zero externally applied pressure single-layer prototype cells is also complete, with the sales generally performing very well on a broad range of electrical performance and characterization tests into cycle life, resistance, storage life and test and multiple rates and temperatures, and here too, the cells displayed less than 1% capacity loss for 100 cycles. So as I mentioned, we have work to do on reliability. The results of these independent tests provide validation of what we have seen in our own labs. We continue to see consumer electronics as an attractive market and our zero externally applied pressure capability gives us optionality to pursue consumer electronics alongside our automotive development efforts as we continue to engage with some of the largest consumer electronics players in the world. On the reliability front, we have already identified and begun executing a number of initiatives to improve the quality and uniformity of our materials and processes, which we believe will lead to better reliability as we continue to get closer to a commercial product. As an example, a material used during the separator heat treatment step was identified as a source of particle contamination and we have begun the transition to a different material and are already seeing encouraging results in reducing particle counts and improving quality and consistency. Next, I’d like to give an update on our technical development. On our last earnings call, we laid out the key goals we have targeted for 2023, which are designed to facilitate our transition from technology demonstration to commercial product. One of these goals was to introduce a higher cathode loading, which contributes to better energy density. There are two main challenges with making higher loading cathodes. The first is to manufacture these cathodes with the necessary quality and consistency, while maintaining the ability to deliver sufficient power. The second is to maintain performance even at the higher current densities that go along with higher cathode loading, approximately 60% higher than the previous cathodes. We are therefore excited to report that we’ve already made and tested 2-layer unit cells with these higher loading cathodes and in our shareholder letter, we published data showing very good cycling capacity and retention at high 1C or 1 hour average charge discharge rates, consistent with the data we previously published from sales with lower loading cathodes. In addition, we also showed data demonstrating sustained discharge rates of approximately 5C at 25 degrees Celsius and as high as 8C at 45 degrees Celsius, while still accessing approximately 50% of the battery’s nominal capacity. When it comes to power performance, we believe an important benefit of our solid-state lithium metal system is the ability to deliver high rates of power even in a high energy cell design, a combination that lends itself well to high-performance applications. Now I’d like to discuss our progress on product development. First, a bit of background on the product side, as a result of our customer engagement across the automotive and consumer electronics sectors, we believe there is a significant opportunity for a cell that combines high energy density and high power. To enable a commercial product that can serve either consumer or our automotive applications on the shortest timetable, we are targeting a single track dual purpose design that we believe presents an attractive value proposition for both automotive and consumer electronics applications. We now have a target for our first commercial product, a 24-layer cell with a capacity of approximately 5 amp hours. This is in a similar capacity range as the 2170 battery used in several leading units. We believe this initial product design makes the most efficient use of our resources and represents the fastest path to market, while delivering a product that presents a compelling combination of energy and power. Importantly, this design uses the same layer count and similar separator area as the 24-layer A0 prototype cells that we have already shipped to customers, derisking these aspects of the product development process. This allows us to focus on integrating the key remaining functionality, including the higher loading cathode and more efficient packaging as well as improved reliability. All key goals we set are for 2023. We also expect this first product to take advantage of our new fast separator production process. Now that we have line of sight to this first commercial product, we can begin finalizing equipment designs for upgraded higher volume production on our consolidated QS-0 pre-pilot line. As a reminder, our current production plan for QS-0 is based on our new disruptively faster separator production process. We currently plan for deployment of this fast process in two stages. The first stage targeted for later this year is designed to triple throughput using similar equipment to our existing lines. The second stage targets even higher throughput to support higher volume QS-0 production and requires new equipment. We can now report that the installation of our first aid equipment is already underway and we aim to complete installation, qualify the equipment and deployed its first stage into initial production this year. We are also already operating prototype versions of our second stage equipment and are working towards final equipment specification. I’d like to close with a word about the big picture strategic outlook for the company. 2023 is about turning the corner from technology demonstration toward a commercial product. This represents a phase transition both in the history of our company and in the nature of our development work. As always, we emphasize us continuing to improve quality, consistency and throughput of our manufacturing processes and increasing reliability of finished cells is not a trivial task. It requires an ongoing and systematic process of identifying and addressing issues, working with material and equipment suppliers and iterating through new processes and cell designs. Yet facing the challenges of scaling up is also a rare privilege. Historically, many emerging battery technologies fail well before this point, often because the basic electrochemical system does not have the intrinsic capabilities necessary to meet customer requirements. Therefore, it’s always motivating to see results from customer testing that validate the core capabilities of our technology. Based on results like these, we believe it’s possible to produce the commercial product using our solid state lithium metal platform that simultaneously achieves high energy density and high power capability, starting with a 24-layer approximately 5-amp power cell. We believe this compelling combination is made possible by the intrinsic capability of our technology. So we have much more work to do as we progress through our roadmap. We believe the work we have done so far has established a solid foundation and that we are closer than ever to our first-generation solid-state battery product. Thank you for your support. And we look forward to reporting on our continued progress next quarter. With that, I will hand things over to Kevin.

Thank you, Jagdeep. In the first quarter, our GAAP operating expenses were $110 million. Our GAAP net loss was $105 million. Cash operating expenses defined as operating expenses less stock-based compensation and depreciation were $62 million. This level of spend was in line with our expectations entering the quarter. For full year 2023, we reiterate our guidance for cash operating expenses to be between $225 million and $275 million. CapEx in the first quarter was approximately $28 million. First quarter CapEx was primarily directed towards facility spend for our consolidated QS-0 preproduction line. We also procure equipment for our fast separator production process and [indiscernible]. For the remainder of the year, our CapEx will primarily go toward facility work and equipment for QS-0. We reiterate our guidance for full year 2023 CapEx to be between $100 million and $150 million. We ended Q1 with just over $1 billion in liquidity. We continue to make progress on ongoing cost savings initiatives and resource optimization. We reiterate our cash run-rate is forecast to extend into the second half of 2025. Any funds raised from capital markets activities, including under the aftermarket prospectus supplement filed on February 28 would further extend this cash runway. With that, I will pass it over to you, John. A - John Saager: Thanks, Kevin. We’ll begin today’s Q&A portion with a few questions we have received from investors or that I believe investors would be interested in. Jagdeep, there is a perception that some players in the industry are moving to larger cell formats. Why have you chosen 24 layers or 5-amp hours as the size of your first commercial cell?

Yes. So we have seen the OEM interest in both large and small cells. But what everyone is interested in is energy density. Over time, we plan to make both small and large cells. But for our first product, we want to minimize time to market. We believe our 24-layer 5-amp power design has the potential to deliver energy densities and power capability higher than cells used in many leading EVs today. So we think this design already offers a compelling value proposition. By using the same layer count and similar separator area of the A0 samples that we have already shipped, we believe we can minimize the amount of additional work required to get to market. And finally, this product also provides us the flexibility to serve the consumer electronics sector.

Great. Thanks for that helpful content. There has been a number of announcements in recent months regarding new battery technologies, including 500-watt-hour per kilogram announcements from some players as well as sodium ion batteries. How does those announcements affect your market outlook?

So we are pleased to see industry players recognize the importance of higher energy densities and the need for new chemistries to deliver this capability. Of the two recent announcements I am familiar with, we have yet to see any data showing performance on high rate long cycle life room temperature test. And of course, without this data, it’s very hard to evaluate any claims. Regarding sodium ion, some of the figures we have seen suggest it has a very low energy density. So, it’s likely unsuitable for high-value automotive applications. In addition, note that if you change the ion that’s transporting charge through the cell from lithium to something else, you are changing the entire stack, including the cathode, the anode and electrolyte, potentially introducing unknown or unexpected materials interactions in addition to requiring an entirely new supply chain. We don’t know what the specific material supply chain is for this class of battery.

Thanks, Jagdeep. Kevin, one question for you, can you talk to how the company is navigating the continued macroeconomic uncertainty and the banking system chain that we witnessed in the quarter?

Yes, happy to. Four points I’d like to make. First, I’d like to highlight the strength of our balance sheet. We ended the quarter with just over $1 billion in liquidity. We reiterated guidance in our shareholder letter that we continue to see our cash runway extending into the second half of 2025. Additionally, concurrently with the filing of our annual report at the end of February, we filed a $400 million at-the-market prospectus supplement. Any proceeds from this would further extend our cash runway. Second, we remain prudent on the use of funds. We continue to make progress against a number of internal cost-saving initiatives focusing on both OpEx and CapEx. Third, our investment policy prioritizes the preservation of principal and liquidity. We have invested our treasury funds in what we view as a conservative manner both in terms of duration, less than 18 months weighted average maturity and credit quality. Greater than 75% of our portfolio is invested in the U.S. government obligations and AAA-rated money market funds. Finally, regarding institutional relationships, we use multiple banks for treasury management and following the unit insolvency have added additional operating relationships as well.

Thanks, Kevin. Jagdeep, turning back to you. Can you give investors a sense for the level of quality quantitate needs to make the system work with higher levels of reliability?

Yes. As we’ve said before, we believe reliability is a function deep identity, and deep identity is a function of quality and consistency, which are in turn functions of cleanliness and process control. As we move to more automated tools, we tend to see improvements in all these fronts. To give you some context, some industries to semiconductor and the magnetic spinning disk storage industries require very high levels of cleanliness and process control. For example, the magnetic storage industry, a very high-volume industry, which ships millions of hard disk drives every year, has heads that flow nanometers above the surface of the platters, which are spending 1,000 of RPM. This requires cleanliness on the order of nanometers. By contrast, we believe we require cleanliness on the order of microns, 1,000 times less stringent. As we continue moving to more automated tools, and continue to identify and resolve sources of defects, we believe we will be able to further improve our reliability.

Okay. Thanks so much, guys. We’re now ready to begin the live portion of today’s call. Operator, please open up the line for questions.

[Operator Instructions] The first question is from the line of Jordan Levy with Truist. Your line is now open.

Good afternoon, all. And congrats on the design decisions, next step for you all. Maybe to start, I just wanted to see if you could help us benchmark the cell design you’re targeting versus some of the cells available in the market today, maybe the 2170 or 4860 in terms of what EV battery performance metrics could theoretically look like down the line once you get things scaled up?

Yes, absolutely. So as we mentioned in our letter, the 2170 that we’re here with has an energy density somewhere in the low 700s in terms of watt hours per litter. And we believe that even with our 24-layer design, with the same area separators or similar area separators to what we’ve already shipped with our A0, we can exceed that number. I think the other thing to keep in mind is that we believe not only can we exceed those energy densities, but we believe that we can do that while maintaining high levels of power. And that combination, we think, is relatively unique. And so we think there is a compelling value proposition with that 24-layer cell, 5-amp hours, which really allows to minimize the amount of additional work that would be required if we were to change the layer count or change the area dramatically or other things like that, which in turn then allows us to basically de-risk those parts of the development process and get to market as quickly as possible.

Thanks, Jagdeep. And then maybe a separate question. If you could just give us a little more detail on the process and steps for scaling up the next production phase of QS-0, I think you said 3x the capacity and what remains to be done before bringing that faster process line online? And then subsequently what the steps are to get to that next expansion following that.

Absolutely. Yes. This is an important question. And as you know, we’re pretty excited about. So as you might recall, we are already using a continuous flow process for our separator collection and for the films themselves. And what we’ve been able to do is come up with a new process that we think is disruptively better. That process can take tools that are essentially very similar to the equipment we already have that we’re using today, and as we mentioned, triple the throughput, that particular – that’s the first stage of this new process. That first stage, we are in the process of deploying right now. The tools are in-house. They are being configured. And we currently plan to have production off of that line starting this year. Now the exciting thing about this new process, though, is that there is a second stage, where we can take the same general principle that we’re using for this process and scale up to even higher throughputs. And now to get those higher throughputs, there is new equipment that’s required. And we’re currently in the process of specifying the tool and process specs for that new equipment. That equipment, we expect will be operational in-house and operational before the end of 2025 in time for our higher-volume sample production.

Thanks so much for taking my questions.

Absolutely. Thank you.

Thank you for your questions. The next question is from the line of Winnie Dong with Deutsche Bank. Your line is now open.

Hi, thank you so much. My first question is with the 24-layer A0 prototype now complete with one auto customer, congrats on that. Like what’s sort of like the next step there in terms of completing testing with the other customers before you can transition to the next phase, which is the sample? And then how far are you from completing this time of the rest of OEM?

Yes. So we are pleased, as we mentioned in the letter with the results of the testing. We pointed out that the [indiscernible] efficiency with the capacity retention, the fast charge tests all went well. Obviously, we pointed out that there is more to do on reliability. No one expects a sample prototype to be as viable as a production commercially shipping part. But overall, we’re quite pleased with the results. From here, what we are working on is taking the key items we mentioned as our goals in our last order. So, the higher loading cathode, the more efficient packaging of the sample, the new films coming off our higher throughput film production line, integrating all those – all that functionality into our samples, and then obviously working on other liabilities. So those will be the – those standard functionality would be the basis of subsequent deliveries to our customers, and we expect to be working on that through when we have the B sample. We expect to have the – as we said before, lower-volume B samples off of the lower throughput production lines sometime next year in ‘24. And then the first B sample off of the higher throughput production lines before ‘25.

Got it. That’s very helpful. And then second question is for Kevin. I was wondering if you can sort of provide additional color on the internal cost initiatives that you to in terms of CapEx and OpEx? Thank you.

Thank you, Winnie. Yes, I would say that we’ve continued to make progress in the quarter, both on OpEx and CapEx areas, not so much progress that we would change our guidance. But it is absolutely an area where our FP&A team is actively working with our cost center owners. There is a real commitment to being prudent with the strong balance sheet that we have, and that isn’t lost on any of the leaders on the team.

That’s helpful. Thank you so much.

Thank you, Winnie.

Thank you for your question. The next question is from the line of Chris Snyder with UBS. Your line is now open.

Thank you. Appreciate all the updates this afternoon. So again, on the 24-layer 5-amp hour cell, you guys said it could be used for both auto and consumer. So I understand that there is better synergies with that and it would be maybe the fastest path to market. Does this suggest that the company has no longer pursue the plan of scaling the cell up to kind of several dozen layers or is that still in the being kind of pushed right in?

No. As we’ve mentioned, we, over time, plan to make both large and small cells. And there is nothing inherent about our technology that causes us to not be able to do that. We just think that there is a lot of value to us, to our investors, to our customers of getting a product to market as quickly as possible. And so our goal here has been to say what can we need to take what we’ve already shipped, which, of course, is the A0 sample with 24 layers in a certain area and commercialize that. And so what this first shipment does for us is it allows us to leverage the 24 layer account that we’ve already done, leverage the – leverage area that’s similar to what we’ve already shipped and focus just on the things that I mentioned earlier that are part of our ‘23 goals. So add to that cell, the higher loading cathode which increases density. Add to that cell more efficient packaging, which also includes their density. Add to that cell, the new films coming off of a more scalable production line, which increases the capacity and throughput of the line, and then couple that with the improvements we’re making on the liability. And those things combined, we believe, get us – something that looks a lot more like a commercial product and does that in the fastest possible way. The fact that, that product, given the capacity that it has and the density it has, appeals to both the automotive sector and the consumer sector, is, in some ways, a bonus because we can now take that same product and have a single-track dual-purpose design. So all that the 2170s that are used in, obviously, many of the best sellings today are about – have about approximately 4 to 5-amp hours of capacity and what we are talking about is about 5-amp hours capacity. So from the same capacity range as today’s 2170, which obviously are high-volume cells. And the energy density that we think we can get out of these 24 5-amp hour cells, we think is higher than today’s 2170s. And then that’s not even taking into account the fact that we think we have power density. So when you couple all those things together, our conclusion is that you have a really compelling first product that can serve multiple markets, that can be better than what is the alternatives that are available and that can really optimize time to market without requiring additional development. We for sure plan to do larger cells over time. This is simply a question of how we can get to market as quickly as possible.

Thank you for all that color. Really appreciate it. does the kind of the focus on the 24-layer 5-amp hour cell, does that have any impact or kind of on your existing commercial agreements with auto OEMs, who are maybe kind of – I don’t know if there is an expectation that these would be kind of larger cells at that – when those agreements are signed? Thank you.

Yes. So I think we are working with all of the players that we have already got to witness with and we are discussing with them the best fit of this design with the various programs that they have in their lineup. And again, because 5-amp hour cells are already used in high-volume automotive applications today, we believe there is going to be no shortage of demand for this kind of cell that offers the combination of energy density and power density in this capacity range. And then in the fullness of time, we offer a broader portfolio, including both larger and small cells in order to address the particular design approach that OEM end up choosing.

Thank you.

Absolutely.

Thank you for your question. The next question is from the line of Ben Kallo with Baird. Your line is now open.

Hey, Jagdeep. Hey, Kevin. Thank you.

Hey, Ben.

Just maybe, Kevin, have you done anything with ATM, I’m sorry, if I missed this before.

Ben, if I correct your question was regarding use of the ATM in the quarter.

Right.

No, we did not use the ATM facility in this quarter.

And then, Jagdeep, can you just – and I know this is all complicated to me, at least. But the different form factors, I think this question was asked before, but – like how do you think about going from cell to going into a product and the timeline that we can see developments there, does this mean just consumer electronics versus automotive going from a cell to a pack. Like how should we think about the milestones?

Yes. So, I think on the automotive side, there is a relatively well made out methodology that they use, which as you know, as you go from an A sample to the B sample and so on to higher levels of maturity. In addition to maturity level, B sample, we have higher volumes, and they use those higher volumes to make packs, we then you use those packs to make – actually test cars and then finally to qualify those vehicles. And then you have a serious production release. So, those are all activities that we were working on with our various OEM partners. On the consumer side, it’s a simpler process because there is no pack so to speak. The cell that you are building is going to go into a device by itself. And the nice thing about this 5-amp-hour design is that corresponds to roughly 20-watt-hours. And 20-watt-hours is on the higher end of what you would see even in a relatively large new model phone. So, if we were to do anything that’s different in terms of that design for a consumer device, it would likely be making it somewhat smaller. And of course, that’s always easier to make something smaller because everything gets simpler and easier. So, I think that – those are the differences in terms of the process flows for how the process to market works. The advantage of consumer, of course is that not only do the simpler processes as I mentioned to you, there is no pack design to worry about, but the requirements at the cell level are also in some ways a lower bar. So, you don’t need the same rates of power so to see rates are – you don’t need super high power to run a phone versus a car. You also don’t need the same temperature performance. Cars need to be rated down to maybe negative 20 degrees or negative 30 degrees. Whereas phones typically don’t need to run that – operate at that lower temperature. And the cycle life are very different. Cars typically will need to run for hundreds of thousands of miles or 10 plus years, whereas no phone designed for 10 years at least where they were, but typically, the phones are designed to be obsolete within a few years. So, all that makes it easier for the consumer application, if you will. So, this is why we refer to this as a single track dual-purpose design. We are doing one design with the 24-layer cell 5-amp-hours, but we think it applies quite well to both consumer and automotive in the sense that there are examples of leading products in both sectors that use cells with capacities in that range.

Thank you. In the past, you have talked about compatibility with current manufacturing, but we continue to see more and more capacity announcement at least like those every day in the United States. Do you think that, that scale is what you can offer to the automotive industry, I mean cell and pack, whomever you want to pick over the next 4 years or 5 years as you get to commercialization, or can you just remind us why you will still be ahead of the curve? Thank you.

Yes. Just to the question then, are you asking whether the need production capacity…?

Whomever, I mean like 35-gigawatt-hours here and there. I am wondering out to 2025, ‘26, ‘27, what your advantage is?

Yes, absolutely. No, you are absolutely right that there have been a lot of announcements relative to new battery production capacity coming online for sure. And that actually is a testament to the – just the expected demand that the automakers see for EVs in their portfolio. As much as we thought that EVs have been growing at a breakneck pace, it seems like there is no end in sight. This is just kind of pace to be continuing. And it is a massive, massive market. I don’t know, 80 million, 100 million cars a year kind of scale and to convert that whole market over to electric powertrains, it will take a long time. It will take, I don’t know, it might take a couple of decades to fully transition over. And so to satisfy that, that there is a need for a lot of batteries, hundreds of gigawatt hours of capacity. So, we don’t see that demand going away. I think relative to why our product is needed, the answer is that all of that capacity or substantially all the capacity that you mentioned is coming in the form of traditional lithium-ion capacity, which means the energy densities, the power densities, the overall cathodes [ph] of those cells are very similar to what’s available today. And we think that having a better cell, which is a cell that delivers better energy density, better power performance, that kind of cell will always have demand. And so what we are focused on doing really is getting this new technology to market in order to enable our customers to take advantage of those capabilities. We heard very clearly from effectively all the people we spoke to, all the customers that we have partnerships with right now that, that the value proposition we offer is very compelling. Our main challenge is, as you know, is simply to get this to market. And so we are focusing very heavily on trying to do everything we can to minimize time to market. And that’s where locking in on this 24-layer 5-amp-hour design, we think is really a big step forward because it allows us to then have line of sight to a product, which allows us to order the tools that we need to mass produce the product, which allows us to get it to market. And of course, there will always be subsequent versions and subsequent factories that have more capacity. But all of that – all that additional capacity, all these follow-on products all run through the first product in the first factory. So, if we don’t do that, none of the follow-on is going to happen, which is why we are laser focused on just getting this 24-layer 5-amp-hour cell to market out of that first factory.

Thank you.

Absolutely.

Thank you for your question. The next question is from the line of Mark Delaney with Goldman Sachs. Your line is now open.

Good afternoon and thank you very much for taking the questions. First, I was hoping to better understand the commercialization timeline, which has been a point of emphasis in the letter and your remarks today. If I heard correctly, lower-volume B samples of this 24-layer 5-amp-hour cells next year, I think you said by the end of 2025 for the higher-volume B samples, but maybe help us more broadly understand when you may be enter this production with that cell?

Yes. So, it’s obviously easier to be real precise about the near-term milestones, right. It’s just a forecasting gets harder the further, you go into the future as it’s predictions are hard, especially about the future. So, I think in the near-term, we have the milestones that we have made out for this year in our – that were from last quarter. Those include, again, as a reminder, the high loading cathodes, the more efficient packaging, the terms coming off the new more scalable production process and then better reliability. Those are all things that are key requirements for any commercial product. And those will also go into these initial low-volume B samples that come off the lower throughput line, 8.4. Having said that, we do have higher throughput tools that we will be ordering that will arrive and being sold by the end of ‘25. So, we believe we can be making the first B samples off that higher throughput line before the end of ‘25. That – the B samples are things that we directly control. To go from B to C, of course, now you have to get the automotive OEM involved and the timing of the C sample is really governed by the specific vehicle program and the customer that you are working with. So, that becomes a little bit less precise. But our target is to be able to ramp up that facility at the end of ‘25 and then be able to ship past that point.

Okay. That’s very helpful. Thanks for clarifying. You also emphasized the value proposition and you think there is some good balance with this product that you have selected to commercialize initially. Could you double-click a bit on that? Maybe one on the cost side, I mean how do you think the cost of the product would compare versus established cells that are in high volume initially, but then of course, over time, you should be able to ramp up. But some of the benefits, right, you touch with the power, I mean what would that mean for consumer in terms of charge times and maybe some of the other benefits your cell could enable?

Yes. I mean I think the core benefits of the cell are really what we have been showing all along, right. We have shown the fact that be higher density because we don’t have the anodes. So, we don’t have – in our system, as you recall, we don’t only do we not have an anode, but there is really zero lithium in our cell – in our anode as manufactured. So, we only manufacture a cathode and a separator, and bring them together as part of the assembly process. The anode forms sit on the first shot, so that both gives us higher potential and identity, but it also gives us an opportunity to have some cost advantages because we don’t need the anode material, whether it’s carbon or silicon or lithium foil and we also don’t need the anode manufacturing line. Now obviously, you can’t compare a small-scale line with a super high volume line in terms of economies of scale and cost and so on. But I think at this stage, when we have a production line that will allow us to have all the details we need to then design larger lines and have more throughput. I think at the end of the day, what we believe is our system has some key advantages in terms of economics, and that’s, I am referring to the not building an anode and not having anode manufacturing line. And we believe this industry has volumes that are so high that economies of scale can absolutely be achieved. So, if you couple those two things, we do believe that we can offer a compelling economic value proposition depending on – more depends on the timing of the ramp.

One other thing I could add just to kind of put out to the shareholder letter is to maintain that – to capture savings there on the compliance that we have eliminated. Of course, have to manufacture our separator at scale and go in throughput with those targets. And that’s why this disrupted this first stage this disruptive process is so exciting that equipment is being sold now. And as we work towards specking up equipment for the second stage, so that’s a development that we think is positive towards that product’s gross margin direction.

That’s all helpful. If I could just ask one last one. You spoke about amp hours of the cells. But as you think about overall storage capacity at the pack level, I think we need to think about how big the cell are versus 2170 and how densely they could be packaged. I don’t – maybe it’s too soon to kind of have visibility into pack-level density. But if you could – you alluded to perhaps even better on that metric. But maybe talking a bit more depth on the overall density potential of your cells versus what thought there that would be helpful? Thank you.

Yes, happy to. It’s a good question. So, actually, there are two points I will make, we will put on that front. One is that the energy density at the cell level, right, we believe it will be higher with the gig cells with the technology than conventional 2170 cells. But secondly, at the pact level because the cells we are shipping will be in a prismatic format. Prismatic cells pack better, right. With the cells, imagine taking a bunch of water bottles and trying to pack them densely you will have dead space between the bottles that you cannot give them no matter how densely you are trying to pack, there will be loss of space. So, I think if you met your calculations are on the order of 9% of the space is guaranteed to be lost to white space. Whereas with the prismatic cells, a bunch of rectangular blocks that you are packing, you can back them up with zero wasted space into a pack. So, the combination of higher energy density at the cell level and more efficient packing because of the prismatic nature of the cells at the pack level, actually give you, we think a compelling value proposition on energy density.

Thank you.

Absolutely.

Thank you for your question. There are currently no further questions registered. [Operator Instructions] There are no additional questions waiting at this time. So, I will pass the conference back to the management team for any closing remarks.

Okay. I would like to thank you all for joining today’s call. And in particular, I would like to thank our investors for their continued support, our customers for their ongoing commitment to bringing our technology to market, and of course, the entire QuantumScape team for the endless passion and dedication that drives our progress.

That concludes the conference call. Thank you for your participation. You may now disconnect.