December 19th, 2020 by Benjamin Schulz
QuantumScape is one of the world’s leading solid state battery companies, and it went public on November 27th (NYSE: QS). The company worked in “stealth mode” for a long time, and received considerable investment by some of the world’s most established cleantech investors, among them Capricorn Investment Group, Breakthrough Enegy Ventures, and notably from a car manufacturer, Volkswagen. We spoke to Quantum Scape CEO and Founder Jagdeep Singh.
Jagdeep Singh, CEO QuantumScape
Benjamin (CT): This seems like an exciting time to ask how the stock listing changes the company or your perspective of the company. Maybe you can describe how you went about the process and what it means for you and the company.
Jagdeep (QS): Sure, so let me back up a few minutes. I don’t know how closely you’ve been following the company, but we’ve been in stealth mode for ten years, obviously, so we haven’t shared much with the outside world. But, if you’ve been following the company, VW have put out a few press releases recently. In the first one they announced that we had tested our cells successfully at automotive rates of power in their labs. Then they announced that they were investing $100 million in the company, then they announced that they were doing a manufacturing joint venture with us to mass produce these cells. Then they announced that they were putting another $200 million into the company.
So, where we are is we have cells. This has been a long, hard journey, solid state batteries are not easy. We are fortunate, though, that we have a great team and enough support from our investors, like VW, and customers, to where we were able to make a material that works. The single biggest issue with solid state is that it does not work at higher current density, which means high rate of power, which of course is what you need for the automotive applications, high rates of power.
Every other previous attempt to do this has resulted in dendrites, which short circuit the cell and cause a catastrophic failure, like a fire. So, the trick was coming up with a material that could work at high current densities with lithium metal as the anode instead of carbon as the anode. And do that without dendriting.
Luckily, the team was able to, after many twists and turns in the road, find a material that meets the requirements and then figure out how to manufacture it, and in a scalable fashion. By scalable I mean a roll to roll production flow, continuous flow process, so it’s not a batch process, it’s not a semi-conductor high vacuum process, it’s just a very low cost process.
So, with that being done, we now have what we call single layer cells, which is one cathode, one separator and one in situ formed lithium anode, that we deliver to our customers.
What remains to be done is to then scale up the production plant. This joint venture with VW that we have to build to produce these cells, the good news is VW is very committed to this technology, they’re planning on basically building their next generation platforms based on this solid state technology from QuantumScape. But we do need to make the cells. And that requires capital. Now, we’ve been fortunate that we have a lot of capital already, before this public listing. We had already more than $400 million in the bank. And then, so when the opportunity came to do this transaction, we lifted the bank that we’d end up raising, we’d end up with basically north of a billion dollars on the balance sheet, which was a big number. A big enough number to where we’d said, yeah, this is something that could really change, really accelerate the trajectory of the company and allow us to build these factories, got to go all out to build them and turn them up as fast…given that we know there’s no shortage of demand, the only constraint to our growth really is how fast we could turn up production. And this capital allows us to unlock that production pipeline, if you will.
So, that’s why we did the deal. We were approached by this back in I think June/July timeframe, early July, and we ended up going forward with it and ended up raising, as you know, about $700 million on top of the $400 million we already had. So, again, that’s where the rationale comes from. And, yeah, as of Friday (End of November) we officially were trading as QS:NYSE for the first day. Obviously, the market seems to have responded well so far. But, you know, for us this is really a long term journey, so we’re not looking at this as any kind of an exit. This is really the beginning of our next phase. The whole team is super committed to making this thing work, delivering these solid state cells in real cars.
We’re lucky to have the partnership with Volkswagen. Obviously, they have some iconic brands like Porsche and Audi, as well as VW itself. And this battery has applications across all those different brands.
The big change, to answer your question, the big change this makes is when you’re a private company, you’re usually short on cash, but no-one cares about your profit and loss statement, because all that matters is you have enough cash. Once you go public, it kind of flips. All of a sudden now, investors care about your profit and loss statement, but you have a lot of cash in the bank. So, even though you have cash, you can’t freely spend it, because you’re constrained by the guidance you’ve already given the street.
From our standpoint, this does increase a little bit of pressure on us. We need to make sure we execute on the milestones that we have. But at the same time, it gives us more resources to increase the probability of executing on those milestones.
There will be a little bit of a distraction because we have a floating stock price now. So, the price can go up and it can go down. And it will go up and down, for sure. There will be volatility. And we need to guide our team and our investors to be expecting that volatility. We don’t want people to be expecting the top price. I mean they basically want to focus on achieving their long term goals.
That’s what’s a small, little price to pay for being public is you do have some volatility, but the benefits of having a billion dollar balance sheet and access to public monitored capital, in our opinion, outweigh those disadvantages. And that’s why we did it.
Benjamin: I was just about to ask, it sounds like that was a fast process to go public. Did it feel like that or not really?
Jagdeep: It was a very fast process. It was lightning fast. I had taken a company public before using the regular way I feel, my last company in fact. And it was about a year long process. Whereas this particular process, from first contact to being listed on the NYSE on Friday, was about five months. So, remarkably efficient process that way.
Benjamin: And since you already spoke a little bit about that you were in stealth for a long time, when you founded the company in, I think it was 2010.
Jagdeep: Yes.
Benjamin: What was the inspiration and how much did that change until today?
Jagdeep: Yeah, so I was running my last company, I had taken it public, was enjoying doing that, and I acquired my first Tesla Roadster. Roadster had just come out back then. And I was driving that around. The Roadster, if you recall, it only sold about maybe 2,500 cars over its life. So, it was not a high volume car. But it was a pioneering idea, that it was possible to have an electric car that was actually fun to drive. It wasn’t like a golf cart. It had incredible speed and acceleration, and it was a full-blown sports car.
But, it had a lot of issues. And those issues all stem from the battery. And as I was driving that to work every day, I just began thinking that man, if somebody could solve this battery problem, you could really change transportation and clean up, if not clean up, make a big dent on emissions on the climate. Because, depending on which numbers you believe, I don’t know a quarter to a third of all emissions, as you know, come from transportation. So, you could argue that you truly can’t solve emissions without also attacking transportation.
I became more and more fixated with the battery problem, trying to solve it. I also learned more and more about it and realised it was a really hard problem. Because people had been trying to solve it for decades.
And I got so obsessed with it, that at some point I decided to step down as CEO of my last company and go and join a venture capital firm, Khosla Ventures, to incubate the idea. And while I was there I met my co-founders from Stanford, Professor Fritz Prinz and Tim Holme. And we started the company. And the rest is pretty much history.
Benjamin: And for us here far away from San Francisco, if you can explain how does it work to incubate a company with such a high profile founding team, it seems, because you weren’t students who tried to start a company and had a bit of funding. But that was probably from the beginning a very, very ambitious project.
Jagdeep: Yeah, you’re right. I think this is an excellent point. The one benefit of having done this before and having the founding team with a faculty member from Stanford and so on, it was a high profile team. The one benefit of that is that you can set your sights a little bit higher, you can take on a little more ambitious project. So, this was a very ambitious project. A lot of people had tried working on it, many world class companies for decades. So, it took a little bit of intestinal fortitude, so to speak, to take on the project.
But I think we were lucky to have a lot of investor interest. We told our investors up front that this was a really hard technical problem, and we didn’t know if our approach was going to work or not. What we did know is that if it did work, it could transform the industry and therefore the world. And luckily for us, enough investors were still excited by that potential to change the world, that they came in. So, we raised investment from Capricorn Investment Group, and Bill Gates came on shortly after. So, our early investors were great – like John Doerr .
He was an initial investor in Google, and Amazon, and Netscape. It’s crazy how many. The analogy I give to people with John Doerr is that in 1905 Albert Einstein published five papers and any one of them would have made him a superstar in the world of physics. And in fact, he won the Nobel Prize for the least well-known of those papers, for the photoelectric effect, not for relativity. And John Doerr is kind of the same, he was an early investor in five companies that all went on to become mega companies, and any one of them would have made him a superstar.
So he got involved and then Bill Gates got involved, and then VW got involved. And JB Straubel, the co-founder and CTO of Tesla got involved. And so, it’s a really incredible team that we were able to build, and if you have a great team, you can attract, obviously the best people, the capital that you need, the customer support, and because of all that, and incredible hard work. I’ll be honest with you, it was not a straight shot, we did not go from we had a design on the whiteboard, and then it worked. There was a lot of path-finding involved. Because we didn’t have a material, we had to investigate many different materials that could function as a solid state electrolyte, and there were many dead-ends that we came up on.
Luckily, one of those paths took us all the way, but it was a long road. This is, of course, why you need so much capital to do a battery project and why it takes so long.
Benjamin: And it sounds like this was almost a bit of a university research on an extremely big scale project in the beginning, setting out with you knew what you wanted but you didn’t know exactly that you would get it.
Jagdeep: That’s right. But because we knew that if we could get it, it would be so game-changing, we were able to resource it appropriately. The problem with university projects is, they don’t have a lot of resources. They’re typically small teams of PhD students and post docs working with some faculty members. And there are problems that you just can’t solve in university.
I’ll give you a simple example. University is very good at coming up with new kinds of electrical devices, like a transistor or something, but something like the photonic circuit, something like that, the integrated circuit, the IC, that just requires a manufacturing capability, it has very low defect counts and very high precision and control. And you can’t achieve that in a university setting. Because in a university, even if you have a semi-conductor fab, like Stanford does, the fab is being shared across so many grad students and professors, that every time somebody comes in and uses a tool, they leave it contaminated, they leave it in a different state, and you just don’t have any kind of consistency. And so for semi-conductors, it’s all about, if you look at an Intel Fab, for example, people in these bunny suits and everything, it’s very precisely controlled and maintained. And that motion of process control is critical. If the process deviates even slightly, it could mess up your chips. You cannot achieve process control in a university.
So, universities are very good for some problems, but they’re not good for other problems. This was a problem that involved a mix of both. It was a new material, but we also needed to be able to make it at scale. And so, the reason why we could do this in the private sector, as a corporate setting, is because the problem was big enough and important enough to where we could attract the kind of dollars that you could never dream of in a university.
So, we spent over $300 million to get to where we are today. No professor could ever raise anything close to that.
Benjamin: That’s a tall order, as they say.
Jagdeep: Yeah, exactly.
Benjamin: And during those ten years, was there a point where you said this is not going to work, I’m very sure it’s not going to work?
Jagdeep: Well, I think there were definitely points where, what we call white knuckle periods, where we were just kind of holding onto the steering wheel, wondering if we were going to crash into a brick wall. Luckily for us, the team was able to find solutions to those problems.
Probably the biggest problem, I’ll be honest with you, is this notion of…it’s the central problem for solid state materials, is of course the dendrite problem. So, when we made the first materials, we saw dendrites, that was a very, very scary thing. It’s customary in the US for people to have Halloween parties where they dress up as scary characters, and one of our engineers used to come every year dressed as a dendrite, because it was so scary to think of.
A dendrite is a metallic, like a needle-like crystal of lithium metal that forms when you try to plate lithium onto the anode. And this can puncture through your separator and short-circuit the cell. So, you need a material that can prevent dendrites from forming. And that’s what we were lucky enough to be able to do. But until we did it, we didn’t know if we could do it, and that was a scary time indeed. And now, by comparison, to be honest with you, the risks ahead of us, there are risks and challenges and tasks ahead of us, like scaling up a factory to literally billions of cells a year. Because VW alone wants to ship three million electrified cars by 2025. They’ve publicly said this. Well, if those were all long-range vehicles based on QuantumScape cells, that would be like three billion of our cells, which is a lot of cells. So, to do that at scale is a big challenge. However, it’s much less of a challenge than solving the dendrite problem.
So, we feel like a lot of the fundamental science is behind us, and what remains to be done now is a lot of the, what we call execution, which is not trivial, but it can be done.
I mean, the idea we give to people is, imagine that you have to build a new skyscraper in New York City, in Manhattan. Well, that requires a lot of expertise. You need people who know what they’re doing on architecture, design, and contracting, and so on. However, as hard as that task is, if you didn’t have the materials, like cement and steel, it would be impossible.
If the materials are there, then the task is doable. There are people in the world who have built tall buildings, so you can definitely get the right talent to do it. If the materials aren’t there, then nobody in the world can do it, no matter what they’ve done. And so similar to here, we now have the materials, we have the solid state chemistry, it’s been tested at automotive rates of power, which is really what no-one else has done. And so the remaining tasks really are very doable, and the key task is to build the right team. Not only do we have a billion dollars in capital, we can execute that task. And there’s never any guarantees in life, as we’ve learned over the years, but this is a pretty good bet. If I were a betting man, I would say there’s a reasonable chance that we can pull it off. And if we pull this off, the impact is so game-changing that it’s just a very exciting place.
Benjamin: And to understand this for somebody that doesn’t know so much about solid state batteries, how do you usually explain to people how much better they are going to be compared to the alternative by the time they become available? You have the higher density, you have the lower weight, and you have the basically easier production, cheaper production that is – fewer things can go wrong.
Jagdeep: So, comparing conventional versus solid state — by eliminating that carbon anode, you can get about an 80% in energy density, compared to many conventional cells. But you also solve the fast charge problem. So, you can charge in 15 minutes, because it’s a fast charge bottleneck. It’s also because it takes time for lithium to diffuse into the carbon particle and internally. So, when you solve that problem. And then finally, its safety improves, because our ceramic separator, the solid state, is non-flammable, unlike today’s liquid litrites which are basically hydrocarbons, they are fuels and will burn.
You get 80% more energy density, you get a 15 minute charge. Today’s best batteries can charge in about an hour. So, 40 minutes to 80%, so about an hour to full charge. And it’s four times faster to charge, and it’s safer. Those are pretty fundamental benefits that you get with the solid state system. And when you say 80% better energy density, that is a huge margin in the world of batteries, cause batteries struggle to eek out maybe three, four per cent improvements a year. So, 80% is like maybe two decades worth of improvements in one fell swoop. And that’s why this has been so exciting to the likes VW.
Benjamin: And is there still optimization possible from then on? So, is this technology also going to improve at a certain rate per year?
Jagdeep: Yeah, so that’s a good question. Once you get the step function with the increase of going to solid state, then you still have the incremental year to year improvements that we’re getting to date. For example, improvements in the cathode, more nickel rick cathodes, better manufacturing technologies with cathodes. A lot of the things that Tesla announced in their battery day are the same kind of things that we will get the benefit of as well.
In fact, almost every lithium ion improvement that lithium ion gets, we would derive benefit from as well. Because the rest of our cell is very similar to lithium ion. The cathode is the same as commercial lithium ion. Our separator is different than lithium ion, but it’s about the same cost, because it’s made of low cost process. And then the anode, the carbon, we don’t even have that at all, so we save that completely. So, lithium ion always needs an anode, so if you compare the economics compared to lithium ion, we expect to always have an economic edge over lithium ion, because we never need that anode, whereas they do.
Also, there’s an opportunity to deploy next generation cathode materials, but we have some great patents on a family called the metal fluoride cathodes, which are not used commercially today, with their very high due density.
We put that research on hold because we didn’t need it for our first product, the solid states separator with the lithium metal anode gave us enough of a win that we didn’t need to also work on a new cathode. But over time, those opportunities exist for further improvement.
Benjamin: And since you mentioned Tesla, they announced building the biggest battery factory in the world. This is basically something you are also going to do, going to have to do.
Jagdeep: Yes.
Benjamin: Does that mean if you have VW as a shareholder as a large customer, are other car manufacturers or companies also going to be able to buy from you, or is that going to be difficult because basically you’re already out of capacity?
Jagdeep: That’s a good question. So, with VW we have a joint venture to produce cells for them. Phase one is one gigawatt-hour, phase two is 20 gigawatt-hours. This is all in our financial model, which is on our website. Twenty gigawatt-hour is a pretty big Gigafactory actually. And the output from that is going to go to VW.
However, the deal is not exclusive. So, we can build other factories with other suppliers, and we fully intend to do that when we have time. VW does have the right to be first and they’ve been such a great partner over the years that they actually deserve to be first with these cells. But they fully understand and agree with the idea that we want to be a supplier to the industry as a whole, because that benefits them as well – drive cost lower for everybody, including them, if we have a higher scale. So, the deal is not exclusive, although VW does have the right to be the first supplier.
Benjamin: Yeah, and it allows you to independently innovate, giving them access to hopefully the best battery tech that is out there.
Jagdeep: Precisely. VW is our largest investor, but they’re a minority investor. So, they don’t control the company. We are an independent company and in the end we’ll do what makes sense for all our investors, not just for one investor.
Benjamin: And mentioning company ownership, what does that mean for you if you go five years into the future where you see yourself, is that something you already know that I have a ten year thing and I want to be…?
Jagdeep: Look, I mean, it’s very hard to predict the future because no-one has a crystal ball. But I will say this, there aren’t many times in one’s life where you have an opportunity to work on something this big and disruptive. I mean, the automotive industry is one of the largest industries in the world. In Germany, a big portion of the GDP, if you add up all the different elements, is related to the automotive space, the car companies and the suppliers and the services, and so on. Maybe one in seven jobs might come from that sector in general. So, it’s a very, very important sector. And that’s true for most countries that have an automotive sector – the US, Japan, China, and so on.
The opportunity to transform the power trades of this sector doesn’t come around very often. In fact, this is only the second time in the hundred past years that you have an opportunity to transform. The combustion engine has been around for over a hundred years, and this is a wholesale transformation of this industry. There are a hundred million cars sold every year, roughly speaking, only about two percent of them are electrified today. Which means 98% of the market is still unaddressed. This transformation will take decades, and in the process, whoever is the winner in the battery space is going to be creating a multi hundred billion dollar company. So, it’s a massive opportunity. It’s not the case where you can just say, oh great, we’ll leave this, go find another one and do it again, because these kinds of things don’t come along very often.
The second thing is, if you’re interested, like our team is, in impacting climate, impacting emissions, this is one of the most important opportunities there is to do that, at scale. This is not just a matter of saying small changes like use less disposable plastics and so on, this is pretty central source of carbon emissions, and it needs to be addressed. So, the combination of transforming one of the largest industries in the world, creating a multi hundred billion dollar company, making a really big environmental impact, all at the same time, makes it kind of a unique opportunity and one where I think the whole team here is very, very committed to seeing this all the way.
So, until we have real cars on the road with this technology in them, we’re going to be people on a mission here.
Benjamin: And is there something that’s going to come from this technology or the deployment of the technology that people don’t realize already, some improvements to society, human life that you’re excited about that are not apparent?
Jagdeep: Well I think the biggest improvement really is the fact that you can…electrified automotive power trades in conjunction with clean energy sources, really have the opportunity to slow down CO2 emission growth, which is a really, really big win.
In addition to that, this material is inherently more recyclable because it’s a ceramic. So, you can actually, in principle you can just crush it up and dissolve it in a solvent and use that slowly to make a new material. So I think those benefits are pretty fundamental to humanity. You know, if you talk to Bill Gates or if you talk to John Doerr, these guys will tell you this, probably no more important problem to solve right now than the carbon emissions problem. And for humanity as a whole, for the species, and transportation, it’s just one of the biggest contributors of carbon emissions, we have to solve this problem.
So, the fact that we have a chance to do this now, it’s very exciting. It’s nice to be able to build a very valuable company and really make some money and so on, investors are happy, employees are happy, but all that can be a little bit hollow at some point if you then couple that with knowing that you’re doing something that is really important for society as a whole. That provides a level of motivation that actually is really critical to pull this off. Because this team really is just…they come in every day excited about what they’re doing, they’re not just doing it for the pay check. The pay check is obviously big enough to pay their bills, but there’s a higher purpose here, for what the company is doing.
Benjamin: And if you look at the immediate future, what is the hardest problem that you’re having to solve right now?
Jagdeep: Now that the fundamental science is largely behind us, the biggest challenge really is the scale-up that we’re trying to do here. And that will take a couple of years, to be honest, because we have to complete some things in the development side, we have to get very large tools for production. Even though it’s the same process that we’re already using, which is a roll-to-roll, continuous flow process, we need bigger versions of those tools. And that takes time. We need to set up bigger factories, produce cells. That scale of process really is our biggest challenge going forward.
Benjamin: And is that a technology that is easy to copy once people understand how it works, or is that a bit like, I would imagine chip manufacturing, that it apparently is extremely difficult to copy at the current state?
Jagdeep: Yeah, it’s very much the latter. So, there are two parts to this technology. One is the material composition, what chemical composition gives you the performance that you need. Now, that composition of course, people can discover, they can look at our cells and chemically analyse it, optically analyse it, and figure out what we’re doing, but of course we’ve patented the composition. In fact, anything about our cells that’s discoverable by a competitor, we’ve patented it. Because we’ve put a lot of money into this, our investors have put a lot or risk into it, and they deserve a return on that investment and that risk before the industry gets commoditized. But beyond that, there’s a number of things that we don’t patent, and those have to do with things are not discoverable, like process recipes and conditions.
So, which intermediate products are used. If there’s no trace left when you make the final cell, which temperatures, which gases, what pressures, for how long. Those are all recipe details that are not published anywhere, we keep them as trade secrets. And if anybody tried, even if somebody wants to ignore the patent protection and blatantly violate the patents, they would still have to figure out all those process recipes. And that’s…all they’ve got to do is trial and error until…it took us many years of trial and error to find to begin with, and it’ll be a long time.
In the meantime, we’re not sitting still, we’re continually pushing forward. So, I think it will be hard. Chemistry is not something that two guys in a garage can work on. You need a lot of…you need people, you need capital, you need tools, and there aren’t that many labs in the world with the capability to do this. And so, we think it will be a while before…we think we have an opportunity to really produce a decent return for our investors before we feel we have to worry about commoditization of the industry.
Benjamin: And since you are now scaling up, do you know how many people you are going to hire over the next two years and what sort of company QuantumScape is going to be?
Jagdeep: Yeah, a lot. We just had a meeting this morning to go over our plan for next year and there’s a massive increase in growth, personnel, tools, capital, everything is going up very substantially. Just to keep us on track with the mission that we’re on right now.
So, while our headquarters is here in California, some of our manufacturing plants will be in Europe, for example in Germany, so that growth will not be limited just to California, but wherever we have plants and a physical presence we will need to grow there as well. So, it’s going to be a fairly significant effort involved to execute on that growth.
Benjamin: Is large scale energy storage on your roadmap ?
Jagdeep: Right now we’re focused on the opportunity of electrification of the transportation sector – though we also understand there may be subsequent opportunities in consumer and stationary storage as we scale to industrialize this solid-state battery technology.
Benjamin: And, are you’re looking into buying any other companies already with that sort of market cap you currently have?
Jagdeep: Sure. I mean I can answer that shortly now. One of the benefits of being public is that we now have a currency, with which you can make acquisitions. So, if we see something that we think could be strategically relevant to us, yeah, that would be an option we would be open to.
To be honest with you, it’s not a high order of priority for us right now. Something would have to be quite compelling. But it’s certainly something that we now have the option to pursue. Whereas a private company is much harder.
Benjamin: My father worked for Mercedes-Benz, so I’m always looking for buyers for that company.
Jagdeep: Excellent!
Benjamin: And the way things are going, I wouldn’t rule it out.
Jagdeep: One of our investors is Juergen Heinrich. Juergen is on the Board of Daimler. He’s a great guy. He was the former CEO and Chairman of BASF, so he knows that world well and I think, yeah, Daimler, like VW and all the other players out there, are moving restively into EVs, and as I say, we got to supply all of the EV players. I wouldn’t go so far as to say we’re going to buy them but thank you for keeping that as an option.
Benjamin: Thank you, have a very good day in San Francisco, and speak very soon. And thanks for taking the time.
Jagdeep: Have a good night, bye.
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Benjamin Schulz I'm investing in positive companies and am passionate about climate action and long-term human challenges. Early partner at BEAM (United People of Climate Action) and CleanTechnica (#1 cleantech-focused new & analysis website in the world), among others.
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