Solid Power, Inc. (SLDP) Earnings Call Transcript

John Van Scoter from Solid Power is going to make a few slides, and we'll do some talk and hopefully, some more people come in.

Well, good morning, everyone, and thank you, Bill and JP Morgan for this opportunity. I'll just briefly touch on a few slides and not the whole deck that is available on our web page. But to introduce Solid Power and why we're so compelling to the industry, we have a leading position relative to sulfide electrolytes for all solid-state batteries. We've been working on this for over 15 years, have a very unique position relative to performance, relative to a wet process that scales and ultimately to the lowest cost. We are pursuing a capital-light business model, which has many, many advantages. We will not compete directly with Tier 1 battery manufacturers. And we have a very strong balance sheet now with over $400 million of cash, cash equivalents as of the close of last quarter. As I mentioned, we've got a very differentiated manufacturing profile, very scalable, high yield and tolerates lower dry room burden conditions. And I think that it's one of the main attractions for our competitors moving forward. We also have a very unique capability relative to feedback loop. In May of last year, BMW announced an all solid-state module based on our cells that we produced, 60-amp hour EV cells and integrated that into an i7 and drove it around Munich for a number of months to demonstrate real-world conditions. But that feedback loop, we continue to have in-house, so we can validate changes and improvements to electrolyte at the cell level, which is quite unique. And then we've got an excellent global partner network with BMW SK On and most recently with Samsung SDI. Skip ahead to why solid-state batteries. This one right here. So what you see pictured there is actually the electrolyte in glass jars. That's what it looks like. And then actually at the microscopic level, you see it there pictured the crystalline structure. This will drive the next level of performance for batteries in energy density, in battery life and charging speed as well as safety. Again, we've got a very unique position with regard to that with 3 generations of electrolyte now available for our customers. The market 5 years ago was still questioning how to do all solid-state batteries. There's really 3 ways you can do it with polymers, with oxides and with sulfides. We've been a long pioneer and evangelist of the sulfides because of their performance. They have the absolute best ionic connectivity and because of their manufacturability, very, very important, and their low cost. You see pictured on the right, a lot of names, all of which have sulfides now on their road map. So it's a strong validation of what Solid Power has been evangelizing and pioneering for over a decade. In terms of why Solid Power itself, I touched on some of this already, but because we have been in the market and driving innovation for over a decade, we have one of the largest data sets, both in terms of electrolyte as well as cells. We're using that and harvesting that now using AI and machine learning to drive continued innovation as well as improvements in our manufacturing process. We have set up a pre-pilot electrolyte innovation center right next to our pilot line. We're using that at a small scale to rapidly make improvements and iterations and then migrate those into the pilot line. We did that most recently with Samsung SDI and BMW on the 3-way collaboration, did some major improvements on our processes as a result of that rapid iteration. I've already mentioned the feedback loop between cell and electrolyte as well as the manufacturing scalability of our process. Again, what makes us unique is we have a mature wet process at the pilot level compared to our competitors using a dry process. And with our partner network, we've been working closely with BMW for over 9 years now, SK On for over 5 years and for Samsung SDI over a year. So on the left, you see where we're active today. We're migrating from a technology licensing collaboration, which is where our revenues have come from so far to electrolyte supply at the pilot level. And then we're building on the right-hand side, a partnership with a world-class partner in Korea to do the next level of scale up and then continue to advance our partnerships overall. We continue to primarily be focused in the EV segment, but we are getting interest in other areas like robotics, humanoids, mining and aviation and defense. So we see a lot of synergies from the EV market into those spaces, but we'll be pursuing the same model there that we have in EV, where we'll be doing proof-of-concept and OEM partnership development and then introducing a Tier 1 battery manufacturer for the volume productions. And lastly, this is our scale up in batteries. It is all about scale up and solving problems as you go to the larger and larger capacities. And so right now, today, we have a 30 metric ton facility in Colorado. That's a batch process. We're in the final stages of commissioning the continuous flow line there in Colorado on Phase 2. That will get us up to 75 metric tons in the Colorado facility. And then as I said, we're in the process of striking a joint venture partnership with a large conglomerate in Korea to do the next level of scale up, probably around 500 metric tons with a vision to go upwards of 20,000 metric tons with that same partner over the next 3 to 5 years. So hopefully, it gives you an introduction to the company and where we're focused, why we're differentiated and where we're headed from.

Thanks, John. Feel free to stay there. We can just chat here, certainly can keep this open. But -- so we've hosted the company here a few years. And I think when you look back, the interest in the EV space has kind of ebbed and flowed and mainly not been as exciting lately. But solid state still moves forward and is actually now closer to realization. But I guess what drove the industry towards this solid state to begin with? And where do you think like Solid Power can create, you're in the material space, but where is the most value that can be created, whether it be selling materials, know-how for the production for your customers, qualification support or some sort of licensing or tech transfer agreement?

So I think if you look at the overall industry, traditional liquid electrolyte-based lithium ion batteries are asmetotically hitting their peak in terms of performance. And so the industry needs higher-performing batteries to address things like range anxiety, charge anxiety, those sort of things. And so all solid-state batteries really are unique technology to do that. So energy density, cycle life, safety and then ultimately, cost at the system level, all we believe will be advantages of all solid-state batteries. Those are the pain points, I think, that SSPs are really addressing. In terms of what we bring to the party, we do bring a unique process capability in terms of that wet process for electrolytes in terms of the highest connectivity for the performance of the electrolyte. And then our intention is to be the absolute low-cost provider to the marketplace.

Yes. So there's been various next-gen approaches discussed, silicon anodes being one that's kind of being implemented, lithium metal, another sort of, I guess, advanced electrolytes. What are the trade-offs you see? And I guess, what is the right commercial time line that we should be thinking of for the various technologies? I mean, some like open of silicon anodes is already happening, but any sort of context there?

Well, I think those technologies you mentioned are uniquely enabled by a sulfide-based all solid-state battery. High-purity silicon anodes perform best in a sulfide all solid-state battery architecture in terms of energy density and performance. Same thing for lithium anodes or anodelyst designs. Those are also uniquely enabled in sulfide electrolyte systems. So I think that we have, again, a unique position as those technologies mature and are introduced to offer higher and higher performance as a result of adoption of those. In terms of time frame, we have to be ahead of the market. A lot of people are talking about 2029, 2030, early 2030s. But as a material provider, we have to be there in advance. We have to be qualified in advance so that they can be considered to be qualified for those SOPs. So we intend to have this joint venture partnership announced this year that will put us in a position to do the design and the construction of that next year to be in a position to ship up to 500 metric tons to Korean customers and other customers around the world in 2028, which would enable 2029, 2030 time frames for SOPs for small fleets. So beyond that, we again envision that same partnership to go up much larger. The concept is a shell factory, and we would drop in 2,000 metric ton modules as the demand materializes going forward for a total capacity of 20,000 metric tons over time.

I'll probably get the manufacturing partnerships in a bit. But I guess you spoke to some of the advantages, but what would you say the key areas to overcome maybe not so much manufacturing, but from like a technical hurdle? Or is there really -- is that really not the case? It's more of a scaling matter at this stage?

From an electrolyte standpoint, it's scaling. But the cell designs themselves are still maturing. So to get to the target energy densities and cycle life, for instance, and safety at an EV size cell, I think, are still technical challenges that the Tier 1 battery manufacturers are grappling with. We know that because of our work most recently with Samsung SDI. It was a tremendous collaboration. We learned a tremendous amount. They challenged us, but we could tell that their designs are still evolving to get to those target levels that have been demonstrated at small scale, but not at large EV size cells.

I mean, obviously, EV would be the kind of focus of this conference, but I think you've also mentioned interest from other areas like robotics, things like energy density seem obvious for EVs, but how should we think about the fit of these other markets versus EV? And I think auto is well known as having very long qualification time lines. What, if anything, would be different from a qual time frame or system level constraints for other markets?

What we like about the humanoid market is that a lot of the same requirements from the EV market are the same in the humanoid space from what we see so far. The pack size will be smaller, but energy density, cycle life and safety are really important to a lot of the humanoid market from the interactions we've had with customers. The difference is in duty cycle. And so that's the one thing that we still have to prove out, I think, with the Tier 1 battery manufacturers is the duty cycle associated with the expectations in humanoid. But otherwise, there's a tremendous amount of crossover. And we do think that the qualification cycles can be compared to EV. So it's not as big a market, but I think in terms of a proof point, in terms of an application that ASSPs really offer a differentiation on, it's very attractive.

I guess besides robotics and of course, EVs, what's the level of interest you see from other markets? Like you have large markets like data centers, you have critical markets like aerospace and defense. Like what would you need to see to prioritize these in the more structured relationships like you have with the 2 Korean entities?

Actually, mining, we think, is more near term. We have seen some interest in those areas that you mentioned, particularly in aerospace and defense. But those are crowded fields, and they're not ultimately a huge market from what we can see right now. I mean there's a lot of tension on defense right now with what's going on in the world for obvious reasons. But we think actually mining and a lot of the same attributes in terms of safety, electrification, et cetera, as the EV market could be very, very interesting.

And that's the same sort of just at a much larger scale for EVs, just the energy density.

That's right. That's right.

Okay. I guess coming back to manufacturing and commercialization, you had some good slides there. But I guess, where are you on this kind of continuous manufacturing pilot line today? And what are the kind of the key next gates, whether it be equipment acceptance, plant validation, start-up? trying to get a sense for where we are in the ramp to steady-state output.

So we started our continuous project based on a DOE grant we received in 2024, $50 million. We have been in the design and planning phases of that since then. We just in the second quarter, received all of the equipment at our location in Colorado for that and are in the process of completing the construction and utilities interconnect for all of the unit processes that are in that process with the expectation we'll be commissioning that in the fourth quarter of this year, which will allow us to start production in the first quarter of '27. So we are on plan according to what we set out in 2024. We actually are under budget, which is a nice place to be. It is after customer support, it's the #1 project at the company right now in terms of execution and completion. But I look at it every month, if not more frequent, depending on what's going on in the project. There's a lot of weekend work going on right now to maintain production with our current line and not disrupt that while still complete the construction. But it's all planned out very well, and it's going well. I also would add that we've had no safety instances associated with that project life to date. And that's a big step for going into a brownfield facility, continuing to operate manufacturing for our existing relationships and then adding that capability into the facility.

It feels like you get asked this question on every earnings call, why not why not expand in the U.S.? And I guess, why is Korea the right location? Maybe you can ask that like so why is that the right location for the next step in commercial sort of scale production? And how do you think about the supply chain or geopolitical considerations when choosing partners? And we'll get into your partnerships in more detail.

Yes. Korea is just a unique battery ecosystem. You've got -- of course, the OEMs are there. You've got world-class Tier 1 manufacturer -- battery manufacturers that are there. You have a government that supports the battery industry very, very aggressively. You have national labs that you can collaborate with. You have just engineers, scientists, chemists, all that are very battery literate. You have supply chain partners for the raw materials that are very, very sophisticated and mature. So that's why we chose Korea. It also is a place where we believe we can protect our intellectual property uniquely. And so from our standpoint, the demand is in Asia. Korea is uniquely positioned. Also, the geopolitical relationship between U.S. companies and Korean companies is strong compared to other options, if you will, from our perspective. So it's a good place to start. I believe that it will materialize in the U.S. at some point, but it's just not there today. So we're starting in Korea with an intention to come to the U.S. as soon as that demand materializes.

Tying back to auto. I think in my past sort of career, ISO 9000, 9001 have been -- those are kind of critical and pretty time consuming. But what does the certification change in practice for customers or for internal execution?

Yes. So we undertook this last year. We did complete the Stage 1 audit for ISO 9001 in the second quarter. We intend to have the Stage 2 completed in the third quarter as we speak with a certification by the end of the year. All indications are that we're on track to do that. Now what it does for the customer is it gives them a level of confidence that we have the process controls, that we have the management of change controls, that we have the documentation and we have the repeatability so that they can make decisions to use our material and have confidence that it will not be a supply risk to them. From an internal standpoint, we get tremendous efficiencies from it. We identify processes that we need to improve. We identify process owners, so there's ownership. We have regular reviews at the management level to continue to drive to consistent output for our factories. It is a stepping stone for any commercialization. I'm really pleased with where we are. It also will be key for this joint venture partnership in Korea. It's absolute table stakes to be able to be in a position with that certification to enter into a joint venture partnership like we're contemplating.

Yes. I just sort of last question. So I think I've talked about this in the past. Moving to, I guess, a continuous process makes a ton of sense, can limit maybe some lot-to-lot consistency of batch, but it feels like it also might limit your ability to make custom or change lines. But I guess how should investors think about the quality control aspects of the specs that matter most?

So the way we designed the continuous flow is we have unit processes now that are much more controllable compared to the batch process. So the type of equipments we're using, the type of processes that we have developed are much -- have much tighter control limits, much more gauge R&R. All those kind of basic manufacturing capabilities are much tighter with the continuous flow process. The reason we know that is that we have actually done at a very small scale, a pre-pilot scale, use of each one of those new equipments in our electrolyte innovation center. And we've been developing the processes and doing the design of experiments and running the gauge R&Rs on those smaller equipments. The same manufacturers will scale up or have scaled up, and that's what we are installing right now in the continuous flow pilot line. So it gives us great confidence that we've demonstrated at a smaller scale, same manufacturers for the equipment at a larger scale and the same -- largely the same processes that we will be able to control much tighter our lot to lot and our output for the continuous flow line.

Let's move to some of the partnerships. So on the joint evaluation with BMW and Samsung, what are the next steps investors should be looking for, I guess, over the next 6, 12, 18 months?

We expect with the natural closing of the Phase 1, which is very productive from all party standpoint, but certainly from our standpoint, we'll migrate to separate agreements with the 2 entities to take the next phase of collaboration. We've got a long-standing relationship with BMW. They're going through some changes internally. We've got now a standing relationship with SDI. They've got some new requirements for things outside of EV. And so what you can expect is a continuation, but an evolution of our collaborations with those parties individually.