00:05:33 · CJ Gustafson, Kevin Hettrich
[00:05:33] S1: That's super helpful because I I mean, everybody listening uses batteries in some way, shape, or form, and we probably hear about it with all these cars going electric, even motorcycles going electric. I think I saw something like you were riding a Ducati across this stage. [00:05:46] S0: About a year ago, together with our partners PowerCo, which is Volkswagen's wholly owned battery division, we made the solid state lithium metal cells, worked with Audi to make kind of a motorcycle pack out of them, and then put it into a modified v 21 l Ducati race bike and drove that across the stage at the Munich Auto Show. So that was our vehicle debut. We started the company fifteen plus years ago, not even sure if the material even existed. To go fast forward all the way to kinda late stage prototypes and powering our first vehicle on one of the preeminent automotive stages was pretty special. [00:06:27] S1: Can you just speak to having the patience for such a long feedback loop? I've never been a part of any company where it takes so long to find your commercial validation.
00:06:36 · Kevin Hettrich
[00:06:36] S0: I'll take that both as a compliment, and also, I too, we would like it to go as fast as we can. Two things, one is the size of this. Maybe a little bit of an anecdote of what we're trying to do and why it's so challenging. So batteries are very demanding things. They need to be small and light, they've gotta work with the power, the materials have to exist. The bill of materials, how you make them kinda has to work, and everything's all interconnected. It's a bit like having 10 or 12 key requirements and each one is an and statement. You miss one, you don't have it. So that's why they're so hard and why it's been such a kinda large kinda problem for a long time. We take lithium ion batteries, and we're taking all the graphite and silicon out of them. Turns out you don't need that. And when you do that, instead of lithium ions being the form it... It's... And when it charges, you plate out pure lithium metal. So having removed all that material, they're smaller and lighter. They're faster charging because it doesn't have to go the same distance. The the things we remove are... Tend to be flammable. And then one of the major sources of life loss is also linked to the things that we remove. So it's very elegant. You get all these performance advantages by removing graphite silicon. Graphite turns out 95% of which comes from China, and the elimination of that has some nice supply chain advantages, especially in some geopolitical futures where there's... Well, it doesn't have access to that. And that sounds great. Question is why haven't you done that? Because there's that little part in the middle of the battery between the two sides and the cathode. It needs to be engineered to make that work. It's a very thin ceramic material. Material has to be stable to lithium metal. Almost nothing is. In order to make that device work, we're passing one of the most reactive elements on the periodic table through it. So it's a solid film, you pass a metal through it. Imagine like you have like a windowpane or something. You put the lithium metal once that it literally like goes through it. It needs to do that reversibly like a thousand times. Less thickness than a human hair, and the build materials needs to be plentiful and need to basically manufacture it for free while doing the durable requirements of automotive.
00:08:43 · Kevin Hettrich, CJ Gustafson
So it's just wild, all these things stacked up. So that's why it's such a big prize. We have an amazing team of scientists and technicians and kind of the effective of pit crew that supports them all. It's because of the prize and it's because of the differentiated technology that there is that patience to put capital at risk because of the size of what is on the other side. [00:09:04] S1: You're allocating capital against these technical milestones where the probability of success... I mean I mean, it's hard to know. And then the end economics of when you finish it, that's still moving around because we function in this live economy. So as the CFO, what are you optimizing for?
00:09:04 · CJ Gustafson, Kevin Hettrich
[00:09:04] S1: You're allocating capital against these technical milestones where the probability of success... I mean I mean, it's hard to know. And then the end economics of when you finish it, that's still moving around because we function in this live economy. So as the CFO, what are you optimizing for? [00:09:18] S0: I'll give you a big picture answer and a small picture answer. Big picture. Is it a big market? Is the product compelling? And will it be when... If you kinda give credit to your competitors as well? If that's true, you're like, okay, I'm heading in the right direction. There's a big market. My customers are validating just how compelling it is. That's a good long term thing. From the short term nature, it's like, can I break this up into bites? A long term promise isn't very valuable if you don't exist to get it. So can I break up the value creation into steps? And do I have sufficient capital to kinda get to each one? And making sure that you're doing that conservatively and that the NPV kinda continues to solve at every point. One other thing I would highlight is that there's a lot of degrees of freedom. We have effectively every end market you can think of, and then there's a diversity of products and product requirements in there. So that that portfolio nature of this does give us lots of degrees of freedom, and perhaps we may talk about some of those choices along QuantumScape's journey.
00:09:18 · Kevin Hettrich, CJ Gustafson
[00:09:18] S0: I'll give you a big picture answer and a small picture answer. Big picture. Is it a big market? Is the product compelling? And will it be when... If you kinda give credit to your competitors as well? If that's true, you're like, okay, I'm heading in the right direction. There's a big market. My customers are validating just how compelling it is. That's a good long term thing. From the short term nature, it's like, can I break this up into bites? A long term promise isn't very valuable if you don't exist to get it. So can I break up the value creation into steps? And do I have sufficient capital to kinda get to each one? And making sure that you're doing that conservatively and that the NPV kinda continues to solve at every point. One other thing I would highlight is that there's a lot of degrees of freedom. We have effectively every end market you can think of, and then there's a diversity of products and product requirements in there. So that that portfolio nature of this does give us lots of degrees of freedom, and perhaps we may talk about some of those choices along QuantumScape's journey. [00:10:14] S1: Early on at QuantumScape, you looked at one of the manufacturing approaches, and you realized that even if the tech worked, the economics were nowhere close to what the auto industry could support. How did you figure that out, and and and what did it change for the company?
00:10:28 · Kevin Hettrich
[00:10:28] S0: When I joined, I was coming out of the kinda science and engineering side from Stanford as well as the business side, and I myself was like, I I think I can be helpful in this context, but I didn't know. It was my high... I've become a private equity consulting in my first kind of operating role. So I did have a chip on my shoulder and did want to try to make a positive impact on things out of the gate. And this, what you're referring to, is I think one of the first indications like, oh, okay. I've got a role here. Just made one other contextual point. Our CTO, when I was in the process of being hired, I was in the room, their CEO was like, hey, why are we hiring somebody who doesn't have a PhD in material science? Isn't that the work to do? And our CEO, Jagdeep Singh, is like, no, Tim, go hunter Tim. Like, trust me, there are other things to do in addition to the science. So I got there, and we were using a... An r and d tool, which was vacuum based. And just think think of it, it kinda makes things slowly wonderful for r for r and d because you quickly change out the materials and quickly get data points. The speed of learning is a really important kinda metric that we we we kinda track. Some of the hardware team is like, I don't think this is gonna scale. Then our CEO doing the right thing is like, prove it to me. Like, let's not take anything for granted. Prove it to me, and until you prove it to me, we're making the devices, they're promising now, why shouldn't I just kinda keep keep doing that? Let me take this on. So what I did is I kinda talked to a bunch of people, did a bunch of research, and then a few weeks later kinda brought people back in the room. When I says, okay, let's think about this. What are the different components of cost of goods sold? It's things like depreciation and materials and labor and consumables like electricity and process gases, those are my columns. Along the x axis, I put at the bottom, what's the best we've ever done? And then the second line was, what is the best anyone in any application on the planet has ever done? And then the line above that is what we probably need to be successful in automotive. And I just put it out, and I was like, let's count the orders of magnitude. One, two, three, four, five, six. And then the room just exploded.