00:21:42 · CJ Gustafson, Kevin Hettrich
[00:21:42] S1: On that point though, where do you insist on forecasting something tightly, and where do you just accept that uncertainty is just too high to pretend you know the answer? [00:21:52] S0: I love controlling things. I am definitely kinda little little type a like that. So I just... I I do also try to have an appreciation that the things we can control and the things we have high confidence in would have a tighter range. Things like expenditures, if we have, like, a robust pipeline right now, we we forecast customer cash inflows across our different verticals. Things that we put more loosely in ranges are things that we don't control, or ones where we know that there's a few discrete scenarios could happen. Like, do you win this new customer development agreement? And if so, the packet... This falling package of things will happen. Like, we'll take on this development work. We get these inflows. We need these resources to kinda do that. So we we use a combination of both of those, and then we also try to flex, like, being more conservative and being being more optimistic. We try to flex down to being more conservative in terms of things like capital planning and setting expectations with the public, and then we try to flex it up to be more optimistic and aggressive when we do internal goal setting. So all these different views we think have uses. [00:22:56] S1: What are the top metrics you care about in in a business like yours?
00:22:56 · CJ Gustafson, Kevin Hettrich
[00:22:56] S1: What are the top metrics you care about in in a business like yours? [00:23:00] S0: Long term, it's return of capital to shareholders, top line and margins and capital efficiency. In our current stage, where we're in the early part of the commercialization window, kinda collecting kinda cash flows from leading customers to do custom development, to do samples, to do prototyping. Some of the operational metrics are just as important. On the product development side, are we hitting kind of gates on time? Can I quantify just how compelling the product is and, like, a a customer willing to pay? Willingness to pay? On the operations side, again, are we kinda bringing up our pilot line as anticipated, and are we tracking to the learning curve that we think is there? Like, as we make improvements and kinda bring up volume and run through more parts, am I kinda hitting that shape? The balance sheet and kinda capital allocation, we like a big strong balance sheet. It's your friend when the world is bad, and you've got a kinda staying power when the rest of the market is taking a step back. It's your friend when times are good, and you can do kind of growth leaning type things. Am I spending the right amount of money, or am kinda priorities kinda right, or also really important?
00:24:04 · CJ Gustafson, Kevin Hettrich
[00:24:04] S1: We were talking to Craig, the CFO of Oklo recently, and his company makes nuclear reactors. And they're pre revenue, a lot of money goes into the business, and they have to communicate to the street how they're making progress. And I find it just this fascinating dance because you're doing real stuff. You just have to communicate your progress in a different way so investors understand what they're actually underwriting. [00:24:26] S0: And that's actually one of the reasons when we became a public company, we chose a shareholder letter. That narrative style allows us to include things like photos of the equipment or graphs in terms of product differentiation. We can list very carefully, here are the different stages of a customer funnel, and we have, for example, we work with four of the top 10 OEMs in the world. With Volkswagen, we have a kind of a quite mature collaboration and licensing agreement. We have three in the stage right before Honda and kind of two others. So we're able to... It's a really nice medium to do that type of communication, so that's actually... Precisely to your point, that's why we adopted that. [00:25:05] S1: Oh, man. I'm such an investor relations nerd, so this is the deep cuts. People on the show who who tune in, they appreciate like these micro moments where you go deep on something. I think like doing a shareholder letter is a beautiful thing in a business like yours because to your point, you're trying to paint a story that is so nuanced that hey, this is how much cash we have, like that's not gonna do a lot for
00:25:05 · CJ Gustafson, Kevin Hettrich
[00:25:05] S1: Oh, man. I'm such an investor relations nerd, so this is the deep cuts. People on the show who who tune in, they appreciate like these micro moments where you go deep on something. I think like doing a shareholder letter is a beautiful thing in a business like yours because to your point, you're trying to paint a story that is so nuanced that hey, this is how much cash we have, like that's not gonna do a lot for [00:25:26] S0: Yeah. And on something like a prototype result, it's very important that we communicate all the conditions on which that was taken. The context matters in all of these things, and it gives us an opportunity to be precise and to include other objects in there, as I mentioned, like photos and video... Like links to videos and graphs and things that that help give investors a story that they can use to understand if we're tracking or not tracking to plans. [00:25:50] S1: Talk to me about a licensing model. How does that work?
00:25:53 · Kevin Hettrich
[00:25:53] S0: We adopted a licensing model in 2024. Previously, we were in a kind of a joint venture model. So taking a big step back, what is QuantumScape very kind of good at? What are we kind of built to do, and what have we done to date? Develop incredible battery technology. And that's a package of the materials, the cell design, the method of making, the supply chain behind it, the equipment. All of that is kind of our our technology package. Been working with Volkswagen well over kinda ten years. At that time, they... Well, they continue to be one of the world's leading automotive companies. And during our relationship, they actually went upstream into producing batteries with their group, VW PowerCo. When we originally started, VW PowerCo didn't exist. So we said, hey. Why don't we do a joint venture for the making of cells? Once they themselves went upstream and say, hey. We're gonna invest and become a leading battery cell manufacturer. We said, great. We can revisit where we have that interaction point. And we said, great. Why don't we specialize on the innovation part of it? And we'll we'll work with you. You're already one of the most prominent global manufacturers, and now you're adding battery capacity. Why don't we give you a license instead of doing that that kind of JV part? We can both specialize. Our CEO comes from semiconductor, and we're very consciously picking up the business model that is exhibited there. You have folks like NVIDIA who do chip design, TSMC who kinda makes, and then equipment folks like ASML who who do the equipment. The benefits of that is you get specialization. Everyone kind of does their role, and you benefit from the size of the network. And for as an early stage company, kind of keen on cash, it does wonders. To build multi deca gigawatt hour factories takes billions of dollars. And even after having made that investment, it doesn't really even start producing for another kind of two years, and when it starts producing, it's probably gonna lose money until you kind of come down the curve. So to take that completely away and borne by companies who have steady lines of business, can kind of absorb that upstream investment, big balance sheets, track records doing that works really well. And even better, under our business model, we have two cash flows. So one, of course, is the license.
00:28:02 · Kevin Hettrich, CJ Gustafson
Once the technology's in the factory, we get a cut of those economics coming back to us, very high margin. And the second is preceding that are these collaboration type inflows where our partners pay us for samples to do custom type development to do prototypes. So investors get the benefit of immediate kind of current term feedback that, hey, customers are paying money for the development work that you're doing now, and then we're we're sowing the seeds for that much larger licensing type type model. [00:28:30] S1: This is so fascinating to me because you have a higher margin business and product per se compared to your partners, but your partners have more margin in absolute dollars, and so it's kind of a trade off between the two.