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.
00:28:30 · CJ Gustafson, Kevin Hettrich
[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. [00:28:45] S0: Yeah. And the way this works is the technology creates the size of the pie. Like, much higher performance batteries make much higher performance vehicles. If if you think about... Just taking the vehicle example, Audis and BMWs and Mercedes, some of the most, like, high end, high performance kinda beautiful luxury cars. I'm not a sophisticated engineer. I know that there are differences between them, but there aren't, like, massive powertrain differences once you're kind of in that tier. And what we're trying to create is a massive powertrain difference where your car goes 20 to 30% more miles range of electric vehicle while you simultaneously cut down charge time by half to two thirds. So my Tesla charges, let's thirty five minutes, 10, 80%. We're trying to cut that down to, like, 12. While you're simultaneously safer, we just did publish a bunch of metrics on safety, and we do equivalent or better on all the different metrics that we tested. And then finally, life, our kind of best performing A sample cells were showing one quarter of the capacity fade that was expected. So it's like that just blows the minds of our engineering counterparts on the automotive side, just envision just like the lift in vehicle performance.
00:29:54 · CJ Gustafson
[00:29:54] S1: I think on the business model point, Kevin, regardless of what business people may be in, I think, like, to take you back to 2024, it sounds like you you had this... I don't know if you'd call it a come to Jesus moment, but you had to decide, like, what business are we in here, and what do we wanna own versus what are we comfortable letting a partner own within this larger ecosystem?
00:30:15 · Kevin Hettrich
[00:30:15] S0: There's two interesting kind of points by your question. So one is we had a data point that Volkswagen was excited to do it, but the question is, are our other partners kind of up for that? And we took some risk in moving to that business model before we had, like, kinda hard proof points from the others. What we since found, other people are also equally excited to do that. So there there was certainly a risk when we moved there. Would would the would the other customers come along? And the second point is, like, what do you keep kinda core, or what... Versus what do you kinda rely on partners? A good question is, what are we uniquely positioned to do combined with some, like, strategic elements? So certainly at the the innovation on the materials as it trans... And with the the modifications of a cell design for anything that's novel that's touching equipment and materials, that's core to us certainly through the pilot line scale. We don't think there's another group or team on the face of the earth that can do that as as well as we can in this chemistry. As soon as you get to a pilot line scale, like, yeah, we have a lot of smart, hardworking kinda scientists, engineers, and technicians, etcetera. But once it's kinda demonstrated on a pipeline scale and it's about doing this at kind of multiple orders of magnitude higher, then you're like, okay. Actually, even though this partner doesn't know the core technology, they're very good the rest of that cost curve. So to use an example here, we started working with the two top ceramics players in the world, being kind of Corning in The United States and Murata in Japan, who expressed interest in doing exactly that. They're like, wow. This technology is fascinating. They're both excited for the end market that kinda gets opened up to them in in participating in making our specialized component. And then how we do the ceramic is different. We believe we do it probably two orders of magnitude faster than conventional ceramics processes. We gave a a name, Cobra. And in fact, one of them didn't believe that it could be done. That's what they get. And what we get is the top ceramic partners who know how to take a technology to scale, to drive down the cost as they move up volume, and who are reliable suppliers to our end customers already. So that's like kind of the best of both worlds.
00:32:21 · Kevin Hettrich, CJ Gustafson
To your question, like, do you put it in that... In kinda one bin or the other? Are we uniquely uniquely positioned to do it, then we should do it, or is there someone else on the planet who's probably better at it? Then it kinda goes goes to to the other side. And there... There's a bit of a strategic overlay, like, around the the protection of intellectual property. We always have to under a licensing business model. We always have to own that core. We wanna keep that for the ability to work across industries and also across the product road map in time. So that's something where we are unflinching. Ad[00:32:53] S1: Remember when pricing was simple? One product, one subscription, one invoice every month. Those days are over. Ad[00:32:59] S0: The