Dear Shareholders,

Today, we are pleased to share our Q1 2021 results with you.

As mentioned in our Q4 2020 Shareholder letter, our general reporting approach will be to publish a quarterly shareholder letter detailing the results for the quarter, followed by an investor call to briefly review the main highlights and focus on Q&A.

We saw strong technical and business progress during the quarter. In particular, the following results were noteworthy:

Volkswagen Milestone

At the end of the quarter, we were pleased to report that we met a contractually committed milestone with Volkswagen, which resulted in an additional $100M investment into QuantumScape in April. The milestone required that we deliver, and VW test in their labs in Germany by the end of the quarter to confirm, cells with separator thickness and area near production targets that would operate at predetermined rates of power and temperatures for a specified number of cycles. Meeting this key technical milestone demonstrates our ability to make separators with near production-intent thickness and area, a critical step toward industrialization.

The cells we delivered to VW were among the best we have ever made, reflecting continued progress on the engineering and process fronts. We would like to take a moment to thank the QuantumScape engineering team for their consistent execution on our customer commitments, especially considering the limitations imposed by pandemic-related shutdowns.

Multilayer Progress

On our last earnings call, we reported the first successful test results from multilayer cells with four-stacked-unit layers. As a reminder, each unit layer consists of a cathode, a solid-state separator, and an in-situ formed lithium-metal anode. We reported that the cycle life and capacity retention of these multilayer cells were comparable to those published for our single-layer cells in December. As we stated at the time, to address capacity constraints, we made these multilayer cells by cutting our standard separators (70x85mm) into four smaller separators (30x30mm). We set a goal for later this year to demonstrate similar four-layer cells with large-area commercially relevant (70x85mm) separators.

We are pleased to report that the team has made four-layer cells in the larger form factor. The data from initial testing looks promising, showing ~450 cycles to date with excellent capacity retention, with the cells continuing to cycle, as shown in the figure below.

The data from initial cell testing confirms that the cycling performance of these full-sized four-layer cells is similar to that of the 30x30mm four-layer cells we reported on our last earnings call, which was similar to the single-layer data reported in December.

We believe that the successful build of these four-layer commercially relevant-area (70x85mm) cells demonstrates our continued success at executing on our goals, and reaffirms our belief that we are on track to meet our 8-10-layer cell milestone by year end and commercially relevant prototype samples by 2022. This progress also reflects the success of the team’s efforts to both increase the throughput of our engineering line and design the multilayer cell.

Zero Externally Applied Pressure

In another promising development, we report today testing data of our cells with zero externally applied pressure (i.e., one atmosphere of total pressure) in coin-sized cells. This is noteworthy because other solid-state lithium-metal efforts that we are aware of have generally required externally applied pressure to cycle. Pressure often is used to ensure good interfacial contact between the layers that make up the cell, without which the cell would have unacceptably high resistance and poor power performance. However, delivering very high pressures, as some solid-state cells require, adds cost and complexity to the system. As the data below shows, the cells achieved over 1,000 cycles with good capacity retention, even with zero externally applied pressure. Testing was conducted at 1C/1C, 30 °C and 100% depth of discharge, with a Li-free anode. The fact that these cells cycled with zero externally applied pressure and zero lithium on the anode as manufactured makes these results even more significant. We did this work in coin-sized cells, which is the platform we use for early research developments. While there is more work to be done to replicate these results in larger-area cells, achieving these results in this form factor is an important first step toward introducing this capability into larger cells.

We believe that being able to manufacture cells that require zero externally applied pressure could enable us to address markets beyond automotive, such as consumer electronics, where applying pressure is impractical due to size constraints, and while not necessary for automotive applications, could simplify automotive module and pack design in the future.

QS-0 Momentum

Since the announcement of QS-0, our planned pre-pilot line, we have continued to see strong inbound interest in our technology from multiple prospective customers. To serve this increased interest, we decided to double the initial planned capacity of QS-0 to over 200,000 cells annually, corresponding to hundreds of test cars per year. QS-0 is designed to use continuous-flow manufacturing tools consistent with those we expect to use in commercial production. Supporting this expansion was one reason for the equity offering in March, which raised $478M in gross proceeds, of which approximately half will be used to fund the expansion of QS-0. Additional capital from the equity offering will be applied to fund the buildout of QS-1, our joint venture with VW, which will target commercial production in the 2024- 2025 timeframe.

Last month, we signed a new long-term lease on an approximately 197,000-square-foot facility near our headquarters that will house the QS-0 line as well as other R&D activity. We plan to move into this new facility in the fourth quarter of this year.

2021 Outlook

With the expansion of our QS-0 line and the associated equity offering, we plan to increase spending in 2021 to continue our momentum. Based on our new projections, we expect cash spend on operations and capex for the full year to be between $260M and $320M to support our development activities and the higher capacity QS-0 line. Net of financing proceeds from our follow-on equity offering, VW investment, and public warrant exercises, we expect to enter 2022 with greater than $1.3B in liquidity, reflecting a net increase of more than $300M compared to our liquidity entering the year. We believe this capital fully funds QuantumScape through initial QS-1 production and additionally contributes to the subsequent QS-1 expansion.

We have already accomplished two of the four previously announced milestones for 2021 and have made strong progress toward the third, as illustrated on the chart below. We satisfied the VW technical milestone, secured the facility that will house our QS-0 line, and demonstrated the performance of the initial builds of the four-layer commercially relevant area battery cells. Our remaining stated milestones for the year are to complete the development and testing of the four-layer commercially relevant area cells and then to build 8-10-layer full-sized battery cells that meet our test criteria.

Looking forward, we aim to deliver prototype samples in commercially relevant form factors to auto OEMs from our engineering line in 2022; provide cells for R&D test cars from QS-0 in 2023; and enter commercial production in the 2024-2025 timeframe.

Summary

In summary, we are pleased with our progress this quarter. Since going public in November, we have advanced our technology considerably and hit our key technical goals, as demonstrated in the technical performance data we have released. We have deepened engagements with prospective customers. We have strengthened our cash position. And by embarking on the buildout of our QS-0 pre-pilot line, we will be better prepared to take on the challenges of high-volume production scaling.

We are also mindful of the great amount of work to be done. As we have previously disclosed, there remain many development tasks ahead, including increasing the throughput, yield, reliability, uniformity, and layer count of our cells, installing and optimizing higher-volume manufacturing equipment, designing and engineering our cell and its packaging to meet rigorous automotive specifications (e.g., calendar life, mechanical and abuse testing), and developing the final manufacturing processes.

We remain focused on execution and bringing our technology into mass production. We believe that increasing the penetration of electric vehicles requires making EVs that people want to buy, which requires a breakthrough in battery technology of the type we are pioneering here at QuantumScape. The progress detailed above shows we are making steady progress toward this ambitious goal. We look forward to continued execution on our goals as we work to create a more sustainable future.

Jagdeep Singh		Kevin Hettrich
Founder, CEO & Chairman		CFO