QuantumScape Corporation (QS) Earnings Call Transcript
September 16, 2026
Earnings Call Speaker Segments
All right. Good morning, everyone. For those that don't know me, Andrew Percoco, I cover Autos here at Morgan Stanley. Very pleased to be joined by Kevin Hettrich, CFO of QuantumScape. So thank you for joining us this morning. Before we get started, just an important disclosure here. So please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley representative. All right. So maybe, Kevin, just over to you in terms of anything you want to share before we get into the questions in terms of the story, where you are in the commercialization process. And obviously, the business model is evolving. So I'm sure we'll talk about that. But I just want to turn the floor over to you in terms of any initial remarks you want to make.
Yes. So for folks following the story, we're working to commercialize solid-state lithium metal batteries. which have compelling advantages in all the things you'd care about, smaller, lighter, faster charging, safer. And for those following the story more closely, some of the recent announcements, we started a highly automated pilot line in San Jose called the Eagle line. On the last earnings call, we announced two new customer verticals alongside automotive, where we've historically focused. We've now added Data Center and a vertical called Advanced Solutions, which includes things like aerospace, defense, robotics, consumer electronics and medical devices. And back to automotive, we announced in June a multiyear research agreement with Honda, who together with Volkswagen, are two of the top -- those are two of the four top 10 global OEMs with whom we work. So there's some nice momentum there. So that's a nice kind of initial framing. I'm confident we'll get into all those things with conversation.
Yes, that's great. And maybe just to set the stage in terms of where you are in the commercial process on just the automotive side in terms of ramping up cell production and can you kind of go from there?
We've announced our first product, the QSE-5. That is just over [ 5 amp-hour cell ]. Some of the advertised specs are 844 watt hours per liter, 301 watt hours per kilogram that cell charged between 10% and 80% of state of charge and 12.2 minutes. And as we talked about in our recent shareholder letter, when we do side-by-side testing with lithium-ion of different kind of chemistries and form factors, we see equivalent, if not superior safety performance for the cell. So we're very excited by that cell performance, so are our partners. We've worked for a long time with the Volkswagen Group. They have invested over $300 million in the company over private rounds and then as a public company making contribution under our current collaboration and licensing agreement. In automotive, we have a very capital-light approach. The business model is kind of twofold. One is to work with top-tier customers who then pay us to do specific developments, demos and sampling. And the goal there is to do confidence building and to help train them and do technology transfer to shift to the licensing part, where the cash inflows are -- the potential is quite a bit higher and those would accrue to us on successful transfer of our technology to their factories. So as I mentioned in the opening remarks, with 4 of the top 10 global OEMs, we have nice geography coverage between North America, Europe and Asia, amongst those top 4. We -- together about a year ago at the Munich Auto Show, together with our partners, VW PowerCo, provided the cells into an Auto design pack that went into a modified Ducati V21L race spike, which went across the stage at Munich Auto Show. So that was our first vehicle demonstration globally of our solid-state battery technology, in a very emotional moment for us to see vehicles powered by ourselves on the -- in the public eye. And since then, we started our pilot line in February, which, together with the QSE-5 product, of course, the ability to make it kind of scalable at quality is important. And the focus of the team since that February point has been on bringing up that line and tracking to both internal and external metrics for it. We mentioned on the earnings call that we're achieving 90% uptime on the equipment, which is a nice kind of marker. We're seeing more process stability. And we set out a goal relative to Q2 '26 production kind of pilot line type output levels, we want to double that before the year-end. If we're able to double that, we see it kind of tracking and having satisfactory output for all the breadth of customer demand we're endeavoring to undertake.
And what would you say in terms of your ability to achieve a doubling of capacity or production? Like what are the gating factors I'm sure there's many, but if you can just maybe list off what the top ones are in terms of your ability to get there?
So it's -- they're internally focused as a good way of saying it. So further increases to uptime, yield and process maturity and effectiveness are the ways to get there. So I mentioned, I think, on one of the recent earnings calls that the CapEx you see us incurring is generally not for the Eagle line. It's -- we're already moving beyond our QSE-5 road map and to invest into subsequent kind of product generation. So here, it's continuing to get more and more and more out of the existing equipment that we've put in place. That's true of the broader Eagle line. That's also true of our Cobra separator process that a subcomponent of that Eagle line.
And then on the Powerco, you recently amended the agreement. You made some changes to it. Maybe just walk through rationality behind why you made those changes? And ultimately what the goal is behind the new structure with Volkswagen?
Great question. So to take -- in 2024, we announced a license -- the collaboration licensing agreement with EW PowerCo. The goal of that remains unchanged is to commercialize QuantumScape technology into the VW Group to make compelling vehicles under their brands. That remains the same. They have two members on our board. We have a team from PowerCo on-site, working shoulder to shoulder on that line. There's $130 million prepay on triggering of the licensing part of the contract. All that remains the same. In 2025, we added collaboration cash flows to it. That agreement 2025 was up to $131 million. And that had a number of things that we gently said, "Hey, if you accomplish this, you get paid that" type of a structure. So if you fast forward to 2026 and the recent amendment, a few changes. One is that we reworked what those milestones were. What we found is that for the consumption of materials and labor and equipment to date, it has been less than what was originally contemplated. That was one source of savings. And the second is one of the deliverables was to support the Moto E race program, which is something that was canceled that has no -- not due to us, the rate organizers cancel that for their own reasons. So we had deliverables tied to that, that also went away. So for two of those reasons, we brought down the total billings to then fit the new scope of work. We refocused it on more automotive and less kind of bike at that point because we took away the Moto E. And we also added deliverables from our next-gen kind of road map on there. So the total billings went from about $131 million, closer to $75 million. We commensurately brought down expense. So it's kind of cash flow kind of neutral from both of our sides. And then as a secondary implication by kind of freeing up some deliverables that would have been more bike focused. All that capacity we can then use for other things, be it for VW, be it for Honda, be it for those other OEMs, be it for those other verticals. So some of the overview and how all the numbers.
Kind of where it makes sense. And when it comes to manufacturing, you briefly touched upon doubling production in the second half of the year. As you've moved from kind of preproduction lab testing to the production process, what has been the biggest learning? Because ultimately, it feels like that's where the big problems arise is really taking it from a lab to scaled up production. So what is like top 3 learnings that you would say you guys have come across as you started that process?
That's a good question. So the one learning that I would share that the head of our Board, [ Dennis Segers ], and our CEO and COO, [ Luca ] mentioned, is that you really don't know what you have until you've built 1 million of it. The benefit of just producing very high volume of a part quantity is you get really nice statistics in terms of different kind of failure modes, sources of yield loss, et cetera. So I think the -- just having a highly automated pilot line gives you both more stats and also much more repeated learning. And we've seen it really accelerate the speed with which we can kind of characterize root cause and eliminate things, which is a very like iterative cycle with which you refine things. So I think that was a pleasant surprise to the team, just how like powerful that capability has been. Two is just that like there is a -- in hard tech, it is not a trivial task to take a tool and then to -- that is designed to do a higher volume of something that's more innovative. Just for the room, I've kind of been the equipment that we use, and it's something that's like fairly conventional looking, something that's kind of maybe a little more customized to us, but kind of in the first category, I put the cathode I put testing. In the second category, it's like, okay, we do stacking, but it's specific to our form factor. That's maybe a little more conventional lithium on, but the specs are kind of tied to us. And then the third banner things that it's a pretty innovative piece of tooling out to kind of put Cobra. So for equipment development is hard, like you take specs, it shows up, you derisk it with kind of prof of concept. So -- there's no way around that systematic methodical iterative work. You kind of get the tool and you learn from it, you can respond and like that is the way with which you come down the learning curve. So maybe the second lesson is just -- there's real work there, and it's all about having a good team with cycles of learning, supportive set of ecosystem. And then...
The three get to you, that's good to mine.
Okay. The third thing I'd say is just that we've gotten really positive feedback from our customer partners from other verticals and from our ecosystem that's named and unnamed. So I think the team is pretty proud of what we've created. And as a reminder, the technology platform is the cell and it is all of the means of making, which is the equipment, the processes, the materials and the kind of the supply chain under it.
That makes sense. And speaking of other OEMs, other partners, you recently announced Honda that's right. what bring us into that conversation, why were they interested in the technology? And was there a common denominator between the conversation in with Honda and Volkswagen. And can we expect that to be true with the other OEMs? Or are the OEMs all approaching this in a fairly unique way in timeline?
The thing that is the same is that solid-state lithium metal chemistry can make very compelling products, like for an automotive company to say I can simultaneously improve range, power, safety and life is simultaneously is a very exciting thing. Automotive companies thinking generational type timelines at maybe directionally $0.5 billion to $1 billion to do kind of a new product platform. And if you can have -- it's very hard to get significant differentiation on your powertrain versus a kind of a peer. So we continue to get wonderful kind of traction within automotive partners. The way that, that played out is we had been before the Honda kind of announced the [ ratio ] publicly, we've been working with them for some time. And as they saw us making progress like they announced the B sample, the Raptor and then the Cobra innovation to the separator process. The V21L race bike at last year's Munich Auto Show, the start of the pilot line, all of the -- in the background engineering conversations. We did mention in that press release that they did a quite thorough around the world comparison and technical evaluation. Honda, of course, is a leading automotive company. And they themselves have had pretty significant internal investment into solid state themselves. So I think they're quite qualified and eligible very pleased that, that was the result was the announcement of that multiyear agreement with us. So each of the pieces of progress we make makes the time to convert a little more quick, I would say. So we are building up the foundation and for someone to come in and quickly get credibility, it's just easier and easier. It's like here's the cells, there's the line, here's the road map, here's the next steps.
And you mentioned Honda has invested in this technology, and they've looked at it, is there any synergies there in terms of what they've done and bring it to the table in terms of what you guys? Or are they just essentially saying, okay, you have a better technology. We're going to start from scotch and go with your approach?
I do not have anything to add to that conversation today. It's an excellent question. The other -- so maybe more to come on that. The other piece I would highlight is that Honda in their communication. Of course, they're a leading automotive company. They also do have a breadth of other portfolio offerings, which do line up with some of our other business. So there's an opportunity both within and outside of automotive.
That makes sense. And when you think about adding additional partnerships, additional OEMs, what's the balance in terms of adding a bunch of partners, but also being able to be nimble, big changes and course correct as you inevitably figure things out as you start to scale production. How do you kind of think about balancing that? And what's the sweet spot?
A great question. Four, we've achieved a number of things within the existing four top 10 OEMs. We have geographic diversity is a pretty good share of the world market, just between the four of them. So not that you couldn't increase kind of close partnerships from there, but we're kind of at a point of like each one is such a massive economic opportunity, like that we're probably at a pretty good number, like maybe you could strategically kind of make some small additions, but this is a wonderful kind of core set of partners to work with.
That's great. And when you think about the competitive landscape around solid-state batteries in general, but like let's hone in on solid state. There are others out there that aren't the CATL, Samsung that are trying to commercialize this technology. And I think whenever someone hears how CATL is doing it, that's an obvious risk in some lines. How would you answer that? What's your -- what's your position in terms of the competitive moat that you guys are building around your technology versus the larger players in the space?
First, lots of complements to CATL, dominant player in lithium-ion industry, the speed with which they've hit scale and quality and also done engineering at the systems level to kind of mitigate some of the volumetric energy density weakness, hats off to all of those things. And they are then aimed to track within lithium-ion, especially in that iron phosphate kind of chemistry. With solI'd state lithium metal, it is a different chemistry. The act of removing the anode entirely gives you a structural advantage in terms of weight and volume. You've taken out material. You liter have nothing there as manufacturers, so that's waiting volume. Power, there's -- again, it's a structural advantage. Our lithium ion doesn't have to travel as far to plate. And for those a little more in the weeds, you don't have to slow down the rate of charge -- a higher state of charge to wait for it to diffuse into an increasingly kind of populated anode. For any of those who drive electric cars, you kind of notice around 50% or 60% the rate of charge starts to slow down. And what's going on is, as you are -- if you're a lithium ion kind of charging from the casino battery, you need a little more time to diffuse into a spot in their anode that's kind of not yet occupied. We don't have that. We just plate lithium metal. If you look at our charge rates, we go like a flat line up to 80% at which time we slowed down because we don't want to damage the cathode behind us. So weight, volume, power safety. Today's anodes are full of framable material and the separator material that ports plastic itself is nimble. So we're removing the former and replacing the latter. And then life, one of the major sources of life loss is in that set of materials that we remove. So it is a structural advantage where we are no longer -- we're not competing on cost. And it's a new category that's we see as -- we think there will always be an appetite for higher performance in all these application areas. And as you get to scale, because these advantages come from the elimination we see cost competitive, if not cost advantage when we get to kind of higher scale. So it is a different thing. So that said, the proof is in the pudding. We in our investor deck plot the world's prototype results onto a single chart, I highly recommend that slide. It's one of the favorites among investors. What we say is just put on one chart, how many times you can cycle at a relatively kind of fast rate of 1 hour charge, 1 hour discharged before you lose 20% of capacity. That's basically the definition of automotive life. And then to do so with no excess lithium because that cuts against the real reason you do it. And then reasonable temperatures and kind of pressures, or at least we have different colors on there. If you've got very high temperatures of pressures that probably are not product, we put you in red. If it's something you can do a system, put you in blue. And then if there's room temperature and no apply pressure puts you in green. Long story short, we're ahead of everybody by multiple dimensions. CECL got on to the map for the first time, I think, last year, but is in the 2-plus hour type charge times, I think it was at 500 cycles. And then many of those folks are using materials that you can never say never, but in our experience and belief may not ever heat hit the types of performance levels we've achieved because we have experience working in those. So there is room for multiple winners. But as of today, we're ahead of everyone on multiple dimensions at the same time. And that's before they've invested in, okay, let me make larger and multilayer cells and kind of kind of invest in the method making. We don't have a monopoly on all the world smart and hard working kind of people, certainly not from it. Our goal is to commercialize as quickly as possible and then to replenish the road map and to kind of move on to the next thing. Like that is the path to success as an innovation company.
Yes, that's great. And then maybe just switching gears to some of the new verticals that have recently started to talk about. Maybe just talk through what you see as the most attractive kind of opportunity for the technology? But also like why now, right? You've been focused on automotive for a long time. That's been kind of the north star for you guys. Why is now the right time to be looking at other verticals within this technology?
Choosing between children is a difficult thing. I'll do my best. The why now part is the easier one. It's no coincidence. We started talking about adjacencies to automotive exactly at the same moment, we started up the pile line. To date, we've not had samples that we could get out of -- like our samples are oversubscribed within our existing kind of automotive partners. And it's only now with the pilot line and this ramp-up that we've got the bandwidth with samples to engage more broadly. The two verticals that we announced, one was QSDC, QuantumScape DC Stanford Data Center, and then QSAS, which is QS Advanced Solutions. [ George ], I think, just put out a video last week, talked about aerospace and defense, robotics, medical devices, consumer electronics. When you have cells that are compelling on everything you care about, smaller, lighter, faster charging, safer, longer-lived. It is unsurprising that anything that wants a battery is a candidate to work with that. So we chose things that are adjacent to the QSE-5 utilize the same platform where we believe that there's very strong customer demand. And maybe I'll touch on brief of them in a bit more detail. So let's start with data centers. Very importantly, we are targeting not -- we're targeting inside the building, in fact, inside the rack. There are existing architectures as of today or technically as of yesterday, Amazon announced one too where there are architectures where they want to put battery backup units, BBUs, either into the rack with the GPUs or adjacent to it. The reason they want to do that is a cause they were asking that battery system to do two things, to provide 2 to 5 minutes of backup and to improve the power quality to the. If you can give the GPUs exactly the kind of volatile power ask that they want, they're -- you can get the most out of them, and you can effectively get more revenue out of your GPUs if you keep them with exactly the power demand they asked for. So why would you do it the pay as opposed to supplying it centrally? Two reasons, one is performance. If the power apps were changing that quickly to do so from a distance is difficult, if not potentially outright impossible. And two is, if you just think of like the i-Squared losses supplying kind of copper cables at huge distances, it gets uneconomic for CapEx and also just for efficiency reasons. As soon as you go down the path of -- Amazon yesterday announced what I believe is called the TRN3 where they're putting battery backup units on the top of the bottom. As soon as you put batteries into the cabinets or adjacent to the cabinets, it is intuitive. You want them to be small because that's opportunity cost, you can use for other GPUs or power electronics. You want them to be powerful because they need to do their job and you want them to be safe. for all the intuitive reasons. And as I mentioned, we think that combination is a really compelling fit with our chemistry. On the last earnings call, we said that it's early days, very exciting. We're having conversations both with the people setting the architecture as well as the ODMs would be supplying those cabinets. Our focus is on having the discussions in terms of here is the spectra of ourselves, what do you want, what are your use cases, doing those use cases, collecting feedback and I think forward signals of progress you should look for is like what's the sampling? Are we making progress in terms of the integration of ourselves into the end kind of use of either like rack or cabinets? And then can we show that we're maintaining the really wonderful aspects of the QSE-5 in that system kind of configuration or we're performing data center type use cases. So very, very exciting. There's -- we believe the qualification can be faster than automotive. So -- and we would estimate internally in the 2030 that this could be a low single-digit billion dollar type opportunity and growing rapidly after. So very exciting. Switching gears to the QuantumScape Advanced Solutions. We mentioned on the earnings call, we shipped cell samples to a U.S. defense prime. There, we see -- again, depending on the defense application, we see a combination of different interest include things like volumetric and gravimetric energy safety. As well as the fact that we eliminate graphite, we have no anode. China supplies 95% of the world's graphite. Last year, in a moment of tension, it was something that was threatened cessation of graphite exports to the United States as just a point of leverage between the two countries. It is highly desirable to take that reliance to nothing. So that within defense, in particular, is noted for reasons of intellectual property protection, we've tended to -- well, we've been very thoughtful about kind of partner selection. And with the expense -- with the exception of kind of off-the-shelf type products we could get from lithium-ion, we don't engage in kind of substantive types of purchasing kind of out of China for IP reasons. The result of the separate, of course, is proprietary to us. So eliminating graphite, the separator is proprietary to us. And then for IP reasons, we have the opportunity to be like the poster child of non-fiat kind of cell and push that, how you define that deeper and deeper and deeper into the supply chain. So the combination of performance plus that elimination of anode is getting some real kind of residence on the defense side. Within in there, I think you have some of the fastest qualification times kind of possible. But because that's a bucket that captures so many different things, you have a real diversity of applications and a real diversity of time lines, but some of those can be quite fascinating.
And on the qualification piece and the time-to-market commercialization time line, obviously, I think we can all agree that data center developer probably wants to move a lot more quickly than an automotive OEM, who's thinking on a 5- or 10-year product refresh cycle. So when you talk about data centers and even advanced solutions being potentially quicker speed to market. Is that a function of the technology is actually easier to solve in those applications? Or is it mostly a function of like those customers are just moving at full speed and they're just going to drive that commercialization process as possible.
Moving at full speed and then may have reduced specifications because in automotive, it's a 10-plus year life driving electric car, you want many hundred thousand kind of miles. So the product qualification to confirm your product meets those standards by its nature, kind of takes longer. So I'd say it's a combination of all of those things. We have kind of strong belief that the QSE-5, as developed for automotive is very compelling across that kind of core of attributes. And now it's precisely when we get into the detail of the kind of specs back and forth in the sampling, we've tested all sorts of varieties of automotive use cases, new to us will be the data center one. So this is exactly the type of engineering conversation that is kind of going on as we speak.
That makes sense. And I guess when you think about the nature of the business, you've emphasized this, you want to be capital-light licensing, does that change at all with data centers and advanced solutions? Is there like a PowerCo equivalent that we can think of in the data center market? This as we think about like the financial profile of the business and the capital needs and the capital intensity, how does that change, if at all, with these new opportunities?
Yes. So on the supply of cells to these new areas, our existing PowerCo contract allows them as to be a producer. We kind of more to come on how we supply that. There's a number of conversations going on in the background. So more to come on that for the source of supply, especially as we want to move quickly into these new markets. On how does the economics kind of change? We talked about under automotive, two different streams of kind of cash flow. One is during that collaboration phase, we're getting paid development and demos and samples and then the longer-term licensing one. I would maybe make two comments. One is that it's exciting early days. So in terms of contrasting which one could be more or less attractive or how they differ, I would pump that to a little later when we've had some more of the conversations. The thing I would emphasize is that we are utilizing the same technology platform that's taken us capital and time to develop. Included in the guidance we provided this year are go-to-market sales and some amount of vertical-specific engineering resource. In the scheme of things, that's all incremental to the technology development. We think these incremental opportunities are very much good for the company and good for investors.
That's great. And maybe I got 3 minutes left here. Any quick questions from the audience? All right. If not, we're sitting in here in a year from now. What would you like to be saying to the audience as it relates to auto, data centers, defense, like what's the dream scenario in terms of what you delivered over the next year?
Well, I'm going to give you a nonsexy answer. I would say that I would be tickled if we've knocked it out of the park on the Eagle pilot line. The reason is because all paths through commercialization through any of the customers and any of the verticals have us executing that pilot line well in terms of our internal external metrics. Figuring out the blueprint and the supply chain kind of beside it, that is the core thing on all of the successful journeys. And the speed with which we do that and the quality with which we do that, those cell samples are exactly the currency we use to kind of drive these forward. So that's the same. I think, is like the core thing to get right and I think sets up for all those exciting opportunities in all N verticals after.
All right. We're looking forward to the conversation next year.
Perfect. Appreciate it. Thank you.
Thank you, everyone. Thank you.
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