FREYR Battery (FREY) on Q4 2022 Results - Earnings Call Transcript
Operator: Welcome to the FREYR Battery Q4 2022 Earnings Conference Call. My name is Nadia, and I'll be coordinating the call today. I will now hand over to your host, Jeffrey Spittel, Vice President of Investor Relations to begin. Jeffrey, please go ahead.
Jeffrey Spittel: Good morning, good afternoon and good evening. Welcome to FREYR Battery's fourth quarter and full year 2022 earnings conference call. With me today on the call are Tom-Einar Jensen, our Chief Executive Officer; Jan Arve Haugan, our Chief Operating Officer; Oscar Brown, our Chief Financial Officer; and Jeremy Bezdek, Executive Vice President of Corporate Development and President of FREYR Battery U.S. During today's call, management may make forward-looking statements about our business. These forward-looking statements involve significant risks and uncertainties that could cause actual results to differ materially from expectations. Most of these factors are outside FREYR's control and are difficult to predict. Additional information about risk factors that could materially affect our business are available in FREYR's S-1 and annual report on Form 10-K filed with the Securities and Exchange Commission, which are available on the Investor Relations section of our website. With that, I'll turn the call over to Tom.
Tom-Einar Jensen: Thank you, Jeff, and good morning, afternoon or evening, wherever you might be. Again, a true honor and pleasure for us to present this fourth quarter and full year 2022 earnings call for FREYR Battery. This is our seventh earnings call since we went public on the New York Stock Exchange on July 8, 2021. We will take you through all the notable updates since our last earnings call. I have to say that I'm amazed to see the company we have turned into since our humble beginnings back in 2018. The founders of the company had a dream of creating a sustainable battery solutions champion back then. Today, this dream is becoming a reality as we announce moving from a PowerPoint company to a real battery company. 2022 has cemented our position as one of the few real emerging battery companies in the Western Hemisphere. Building a battery company from scratch is not at all easy and we have lots of challenges ahead. Our industrial DNA, however, is based on a team with world-leading project execution and operational excellence skills which thrive in solving problems. We have combined this painstakingly detail-oriented approach with world leading battery experts and next-generation battery technology. Today, we are very proud to announce a fundamentally important next step in our journey of becoming a clean battery solutions provider and being an industrialization partner of choice in this exponentially booming battery industry. We now announce that we will open up our Customer Qualification Plant in Mo i Rana, Norway four weeks from today. All equipment will be installed on-site with robust testing completed and world-class preparations in place. This marks no less than the start of the gigawatt-hour scale era for the SemiSolid technology platform, a true breakthrough for the battery industry. We had erected a gigawatt-hour scale production line of a nascent technology which has not been trivial but we have done it. Stay tuned for information on how to stream this event live. We are, as previously said, coming to a theater near you. Let me start by focusing on some of the key highlights which we will dive into more detail over the next 30 minutes or so. First of all, as previously stated, starting up CQP this quarter is a fundamental milestone for FREYR. The SemiSolid platform is already in commercial production in Japan at triple-digit megawatt-hour scale. The CQP platform is the first facility globally which will document the platform at gigawatt-hour scale. At gigawatt-hour scale, this platform will be deeply competitive with conventional battery production. Live battery production is very hard, but we are ready for the challenges ahead. Secondly, we are yet again accelerating our efforts in the U.S. and now announcing a target start of production in 2025. This is driven by the Inflation Reduction Act, which is the most significant climate bill since the Climate Summit in Paris in 2015. But the Act is also meant to reduce energy inflation and capitalize regional energy security for the United States. It is also important to note that it's driving similar responses in Europe, and we are deep into processes with local stakeholders to capture such benefits as well. At the heart of all of this, the need to create localized supply chains for critical decarbonized energy infrastructure. Unfortunately, we have seen too many brutal examples that the Western Hemisphere cannot continue to rely, as heavily as they do today, on energy supply and materials from the Eastern Hemisphere. Finally, FREYR has now created real option value for our customers and supply chain partners. We see strong increase in interest across the entire value chain from globally leading companies wanting to partner with us. We have ongoing large opportunities under evaluation to expand into all the technologies and other end markets. We ended 2022 with an as strong balance sheet as we started it, and capital formation opportunities are very strong. We are truly becoming an industrialization partner of choice with world-leading companies. We would not have been in this position a very strong industrial . We process world-leading project execution and operational excellence skills acquired over the decade. This experience stems from the Norwegian energy, energy-intensive and process-intensive industries. With this, let me now hand it over to Jan Arve Haugan, our Chief Operating Officer and President of FREYR Battery Norway, to take you through the status of our operations in Norway.
Jan Arve Haugan: Thanks a lot, Tom, and hello to everybody listening in on this earnings call. I'm now going to give you the latest update in our operations. So safety first. I'm glad that I can say that we have had yet another quarter without any reported serious incidents. However, we have reported three incidents with high potentials, all three of them related to lifting operations by subcontractors at the construction sites in Norway. The current workforce at the two locations in Mo is approximately 90 after a peak of 140 in December at the Customer Qualification Plant and close to 60 now at the construction site for Giga Arctic. As the workforce for construction is now growing, we expect close to 140 persons in March. More complex installations and work is elevated above ground. I find it also relevant here to remind everybody that it's a wider importance of safe job discipline coordination. As of last week, the FREYR operations team is now managing the work permit system for all activities in the CQP. And currently, our operations group is now totaling almost 40 people in Mo. As we noted in our previous earnings call, we are progressing according to our schedules. But of course, we are not immune to the challenges that I noted previously, like for instance, logistics. We have still some COVID-19 restrictions and the scarcity of semiconductors. But I will also say that our teams are delivering very solid performance in recovering lost progress on critical sub projects, and as we speak, the final acceptance tests are being completed. Our project completion system is implemented and all deliveries into the CQP, and we are in detailed control of all the test results from the manufacturer site and any incomplete issue or modification fund that is needed is recorded in the system as contractors. Following the final implementation of the CQP, another punch out is done before the site acceptance test is performed in front of the handover to operations for final commissioning and ramp-up. Each production step is gradually handed over to operations team, which then can start running the process equipment in joint control with the site suppliers, site representatives for guarantee and training reasons. As I noted in the last earnings call, the team from South Korea and Hana Tech did complete the installation and the mechanical completion on the formation and aging section during the fourth quarter. Here on this slide, you can see the photo of the completed system handed over to operations. And all -- currently all upstream systems are being punched out and handing over to operations are imminent. The core equipment of the SemiSolid platform is the casting and unit cell assembly delivered by Mpac Lambert in the U.K. As noted previously, this is the delivery on the critical path towards our first battery milestone. As of today, the agreed factory acceptance tests are being completed. And last week, the anode caster was elevated into its mezzanine platform in the dry room at the CQP in Mo. The next unit is the merging unit, which is now being reassembled for installation in under the anode caster in the same room while the cathode caster, which is the last delivery, is ready for transport from caster in the U.K. to Mo for final reassembly and connection to the merging unit in order to meet our mechanical and completion milestone in March. As we verify and check out each component through the project completion system, the FREYR operators are an integrated part of the project executions commissioning group. And again, remind you that it's the way we jointly with suppliers clear the various punch items that shows the way we secure delivery, mitigate delays and transform into safe operations. The key for us in FREYR is to commit to deliver and deliver as we have committed. And the key is to be ready in the first quarter of 2023. And as you can see on the slide here today, we are preparing for the opening event on March 28. Now briefly on our -- the team that are managing our strategic sourcing is progressing now further into making sure that raw materials are made available. For the CQP, all materials are secured. Materials have even been ordered and the first deliveries have arrived physically at the site in Mo i Rana. We have also secured a major share of raw materials needed for the Giga Arctic. And to prepare for the Giga America acceleration, we have started the process to secure the volumes by approaching close to 20 suppliers, including some of them U.S.-based. In addition, we have driven forward our upstream integration activities to build sustainable regional supply chains. With the signature of the license agreement between FREYR and Aleees we started the design of an LFP plant in the Nordics. Very recently, we went into a partnership with Finnish Minerals Group of Finland by signing a joint development agreement. The ambition of this partnership is to develop a business case for an LFP plant outside the city of Vaasa in Finland in a common approach. On the next page, you will see the latest update from Giga Arctic construction site. Since the last market update, we have heavily elevated out of the ground. As you can see in the photo, prefabricated steel structure for the first dry room of Giga Arctic is completed and prefabricated floors and roofs are in place. The building and infrastructure contractors are continuing at the upstream building where the powder and slurry mixing will be installed and the first part of the formation and aging for line one to four is being installed at the back end of the photo. Project execution continues now with engineering and production line equipment, with focus on the integrated design and the integrated production control system. As noted previously, the early design from module and pack operations with Nidec Energy is being implemented into the plant layout of the west side of the plot. Currently, these parameters are pending final production configuration with Nidec Energy. Finally, before I give the word to Tom, please let me also note that our ongoing engineering for production line equipment and continued design development for Giga Arctic is managed in close cooperation with the scoping of the Giga America plant. Currently, FREYR builds up a team in the U.S. that can initiate the first re-engineering required for an accelerated delivery of the plant in the U.S. This was the operational update of today and now I give the word back to you, Tom.
Tom-Einar Jensen: Thank you, Jan Arve. Encouraging and professional, as always. Let me now remind and provide some updates to our audience around the 24M Technologies, SemiSolid platform. First of all, this is a platform in commercial production today, which was the key aspect for us when choosing to license it. The two other criteria when we selected it was that, it offered a step change in performance and cost and further improvement potential over time for the batteries we aim to produce. Secondly, it is a platform with world-leading companies from various industries and different geographical regions. I'm proud to say that we have deepened our discussions and fortified our working relationships with all of them. These companies include leaders in automotive production, ceramics and ultra-high speed (ph) based manufacturing complemented by deep supply chain knowledge and presence in localized energy markets from China, India, Southeast Asia, Europe, and the United States. In our ongoing due diligence process for Giga Arctic, we have again confirmed that the platform at the gigawatt hour scale will be at the absolute left-hand side of the cost curve. These analyses show that we are positioned to be up to 50% more cost effective than fourth quartile producers. Let me remind you that this is highly likely to occur in a market which will be deeply short battery products over the coming decade. Finally, let me underline the reasons for why this is possible and why we are optimistic that we will prevail. The cell design is a much larger electrode design which will structurally fit better with the ESS and EV configuration than current battery solutions going into the same. The process itself has dramatically simplified significantly reducing space, CapEx, energy, and labor consumption among other benefits. The initial products sent to our customers from 24M and analyzed by third-party labs also yielded very strong results. In addition to scale, which is fundamentally important for any battery producer, all of these components are necessary elements to be able to be competitive in a global race for batteries. With this in mind, let me now turn to the ongoing efforts by U.S. and European governments to ensure energy security. The IRA incentives has already created massive influx of interest and activity in the U.S. For a battery producer, the incentives can create as much as 50% direct incentives relative to the cost structure. Furthermore, our customers are also deeply incentivized which is very important in a market short environment. While heated and intense debates are ongoing on EU's and Norway's response, the key takeaway is that such a response is coming. Batteries is increasingly recognized by many to be the core catalyst for the clean energy transition. 70% of all decarbonizing efforts globally will have batteries included, transportation, and energy system redesign. We are actively working with key stakeholders in Norway and the European Union to ensure targeted responses. FREYR is optimistic that the end results will favor cost competitive and clean solutions to drive the same agenda. FREYR is therefore comfortable to attack two Giga projects in Norway and U.S. simultaneously. This option value that Giga Arctic and Giga America developments provide is triggering increased interest from our partners. Their financial impact from the production tax credits alone provides fundamental support for accelerating new capacity. We believe the global and regional battery short environment will create strong economics for cost effective players. For every gigawatt hour produced batteries in the U.S., we see as much as $37 million in incentives per gigawatt hour of capacity installed yearly until 2030 with a tapering off until 2032. This will, to be clear, exceed by a healthy margin, the total CapEx associated with installing such capacity in the U.S. With this in mind, let me now hand it over to Mr. Jeremy Bezdek, our EVP of Corporate Development and President of FREYR Battery U.S. to take you through the status of our developments over there. Jeremy?
Jeremy Bezdek: Thank you, Tom. First, I would like to express my excitement about joining the FREYR Battery team back beginning of January. I'm honored to work together with such an experienced and motivated team that is striving to provide low cost, high quality battery solutions for multiple end markets across the globe. As Tom alluded to earlier, we are at the point in time where we simply cannot ignore the need to accelerate our U.S. project. It makes sense to our customers, our supply chain partners and our investors. With the site selection process that took place over the last half of 2022, culminating in an attractive site in Coweta County, Georgia, the land acquisition in November was the key milestone for FREYR and the development of the U.S. project. Initially the US project was likely to lag the Giga Arctic project by 10 months to 12 months, but simply put, we cannot ignore the market opportunity that exists to accelerate the production capacity in the United States. To that end, our US team is taking a look at various options which would provide us the ability to move up our startup production from what was estimated to be in 2026 into the year 2025. We have multiple options that we are evaluating that will get us into production faster, while providing a fit for purpose product that the market desires. As we noted on Slide 7, the engineering and production line equipment is replicable from the Giga Arctic project into Giga America. We are focused on a project solution that we think will be enticing from an economic standpoint, not only for FREYR but for our partners that are looking to invest, as well as the ESS customer base in the United States that is in need of domestic cell supply. Many of them have expressed their preference for FREYR to move downstream into module and DC block production as well. So as we continue to explore acceleration options, we are also going to meet our customer demand of what they would like to see as the available product. As highlighted on Slide 11, there are multiple benefits to fast-tracking the development of the U.S. project. The cash flow available for FREYR simply from the IRA incentives, as well as surging demand for our product drive the initial acceleration need. The ability to work with strategic partners who see the opportunity to work with FREYR, both from an upstream and downstream standpoint, provides motivation and incentive for us to move faster as well. In addition, we've heard from financial sponsors that have expressed interest in supporting the project, which could potentially provide us the opportunity to push out the lengthy project financing process to a later phase in the U.S. project. Those financing options would provide the opportunity for us to capture maximum margin through additional merchant sales to what we believe is a fundamentally short ESS market. Moving to Slide 12, we wanted to provide a quick update on the incentive package that was negotiated with both the State of Georgia and Coweta County. The land grant from Coweta County of $20 million was approved last week and will be closing in the coming days. The application for the $7 million land grant from the State of Georgia should be approved and closed in the next two to three months. There are also two different tax abatement incentive programs. The first of which closed with Coweta County for $230 million. We're in the process with the State of Georgia to close the $140 million tax abatement package as well. These incentives in total provide FREYR with approximately $410 million over multiple phases of the project. Of course, there are requirements that FREYR will need to meet, both from a capital investment and a number of jobs created standpoint. But we believe both minimums will be met through the two phases of our growth project in Georgia. To restate, we're excited about moving forward in a faster pace to build our Giga America site in the State of Georgia and we're excited about bringing high quality batteries to the emerging ESS market in the United States. With that, Tom, I'll send it back over to you. Thank you.
Tom-Einar Jensen: Thank you, Jeremy. It is both a true pleasure and honor to have someone with your background and experience join our team. It also provides a ton of comfort and not least already massive progress globally with partners and in the U.S. for our accelerating development. Let me now turn to our view of the underlying dynamics of the energy markets and why this matters for us. And why it should matter to our investor community. At the most fundamental level, let me state the obvious, that solar and wind power generation has a marginal cost of zero and will therefore displace all other sources of energy when it is installed. This effect will only intensify as they grow larger and more importantly for a battery company trigger massive battery demand as batteries today are the most mature, best and cheapest solution to the intermittency problem. Batteries are now, as one example, even replacing peaker plants, and together with solar base load coal generation. Supply chain driven price inflation that we see today is furthermore temporary as we have seen in solar in the 2000s. Battery costs will soon converge back to its learning curve suggesting 15% plus cost decline for every doubling in installed capacity. Solar's learning curve has been quite consistent over the past 50 years, while batteries at gigawatt hour scale only have a couple of decades learning curve behind them. Current ESS all in cost are $300 to $500 per kilowatt hour with potential for large cost reduction across the system scope, halving on the ESS cost will for instance lead to much more than a doubling in total addressable market, due to market dynamics and economics. Our focus on integrating the SemiSolid platform also downstream, as alluded too by Jeremy, should therefore fundamentally provide us with an exceptional growth platform in the largest secular shift in homo sapiens history. While there will be the decade in front of us will be the decade of battery, it will also be fundamentally short batteries and our focus on larger and thicker electrodes will not only enable cost reduction in battery costs, but also significant cost reduction on the system level. This will enable us to play in both the higher price merchant markets and the lower price long term off take market critical for project finance solutions, which are key to unlocking the reasonably new technology solutions. Let me provide some deeper thoughts around why we are confident that we have such strong future ahead of us. And let's try to provide some guidance as to how our previous very bullish market predictions are now increasingly being adopted by men. Most forecasters, sell-side analysts and other agencies are currently using a linear approach to building energy system projections. Driven in large part by what we can see and what we can measure. In our opinion, this approach fails to incorporate exponential development or system disruption as exemplified by the solar, coal and ESS in the presentation. Electricity generation is expected to triple by 2050 in the International Energy Agency's new scenario, scenario, of which variable renewable energy or intermittent sustainable energy will make up probably more than 70% of the total. Based on IEA's track record with the same system bias as alluded to earlier, this is likely on the low side. Solar and wind are already the cheapest source of electricity generation and made up 75% of new capacity in 2021 and probably a much higher number in 2022. This implies a 20 times increase in solar and wind in the period in question, which in turn generates a massive need for storage capacity. Distributed variable renewable energy plus storage is the ultimate solution providing the widest set of services. It's indeed connected through a virtual power plant system, reducing the need for grid expansion and lowering the grid cost for the consumers. Distributed solar plus storage is already the largest growth segments in material markets, such as China, Australia, and Germany. Several studies indicate that solar, wind, and water plus regional solutions of hydro geothermal on tidal, plus ESS is the optimal renewable energy solution. We therefore believe that in a world where ESS solutions from a fundamental backbone of a decarbonized, decentralized and democratized energy system, totaled installed ESS capacity can reach triple-digit terawatt hour scale over the coming decades. This is a world in which modularized cost effective solution from for instance 24M deployed at pace with deep industrial acumen and experience creates a very exciting opportunity for FREYR, our partners, and our investors. While these longer-term perspectives are exciting, let me now summarize our two main positions and projects. Giga Arctic and Giga America will now increasingly be developed in parallel. Giga Arctic and the CQP has already secured world-leading 100% green electricity. We launched Norway's National Battery Strategy together with the Norwegian Government at the Giga Arctic sites have already seen strong signals of support and continue to work with key stakeholders in Norway and the European Union to ensure the localized IRA responses are material and fit for purpose. In the U.S., we have already been through the local, state, and federal incentives and the combination of these with the technology developed in the U.S., leveraging the Norwegian heritage and specific experience from the CQP provides a robust platform from which to grow faster and more profitable. This geographically diversified production platform is with an increasing number of global leading companies are seeing and you should expect to see multiple industrial partnership announcements from FREYR in the near future. Beyond geographical diversification, our increasing visibility and presence across the industry and globally is providing us with an even broader set of opportunity. We have already set our mark on the E-Mobility sector with the announcement of our first off take agreement for E-Mobility Solutions earlier this year, complementing the very strong ESS traction we already have, which has also Jeremy alluded to is growing a lot stronger as we speak. Catalyzed by the 24M platform, but also driven by our industrialization partner of choice approach, we also have deep interest from the global battery industry to partner with us both strategically and operationally. We have a number of ongoing RFQs and partnership discussions, also from the EV-focused OEMs, which should further capitalize larger scale projects with project level financing solutions and deeper strategic partnerships at double to triple digit gigawatt hours scale annually. While we also target other chemistries for other products, our LFP-based focus is also unlocking finance and value accretive opportunities upstream as Jan Arve alluded to, for large-scale camp facilities and other upstream facilities over time and with that securing critical supply of decarbonized raw materials into our products in Norway and the US. All in all, our commercial traction is stronger than ever before. But we will always balance these efforts against our focus on realizing the ongoing project development in Norway and the U.S., maintain optionality, and ensure prioritization on the solutions providing the highest basis for long term and sustainable shareholder return. As a subtle point, to underline our discipline, we ended the year with a balance sheet as strong as we started it with. And with that, let me leave the word over to Oscar Brown, our Chief Financial Officer, to provide you with a rundown of the financials for Q4 and 2022 and our financing efforts and strategy to unlock all of this potential. And over to you, Oscar.
Oscar Brown: Thank you, Tom. So I'm on the financial update slide in the earnings deck, and I will review our financial results for the fourth quarter and the full year of 2022, as well as provide an update on our financing initiatives. For the quarter ended December 31, 2022, FREYR reported net income of $25 million or $0.20 per share compared with a net loss of $28 million for the same period last year. The net income for the company's most recent quarter was a result of a $60 million non-cash gain on our warrant liability fair value adjustment due to changes in our stock price from the end of the third quarter. For the full year 2022, the company reported a loss of $99 million or $0.83 per share compared with a loss of $93 million or $1.24 per share for 2021. As a reminder, the warrant liability fair value adjustment moves around period-to-period, based upon, among other things, the company's stock price at the end of each period, generally reporting gains on the stock declines as was the case in the fourth quarter and losses when the stock rises. For the full year 2022, this adjustment was a $14 million gain. More importantly for today is our cash investment rate. We spent net cash of $107 million in the fourth quarter compared with $70 million during the third quarter and $254 million for all of 2022. We ended the year with $563 million of cash, cash equivalents and restricted cash and no debt. Our cash burn rate and capital expenditures were almost completely offset by our successful follow-on equity offering in December that netted the company $251 million. As shown on the financial update slide in the earnings deck, naturally cash was spent on corporate overhead, operating expenses and capital expenditures, primarily supporting the customer qualification plant and Gig Arctic, as well as the purchase of our 368 acre Georgia site for our U.S. Gigafactories and other business development activities. Excluding capital expenditures, our overhead rates or burn rate at the current level of activity, including the development of multiple factories, R&D and SG&A is around $95 million per year, but we will look to reduce that going forward. Regarding capital expenditures in the broader organization, we are focused on developing options to accelerate our efforts in the U.S., so we can get product to market sooner and take advantage of the U.S. Inflation Reduction Act as soon as possible. Under the Act, the Section 45X production tax credits began declining in 2031, and will be completely phased out by the end of 2032, so time is of the essence. Partnering in the U.S. will be key to our financing and development plans, but the equity offering in early December has given us flexibility to make significant progress on this journey. We will continue spending on Giga Arctic in Mo i Rana, as we have so far at a measured pace as we anticipate a response to the IRA from the European Union, but more importantly to us from Norway. The potential favorable impact on the economics of all of our projects around the incentive programs in the U.S. and potential responses in Europe is significant. While we have a long list of stakeholders at FREYR, allocating capital to the highest-return projects is central to our financial policy. Despite these longer-term activities, our primary focus in the near term is getting the customer qualification plant up and running and then producing testable batteries as soon as possible. This is key to validating the 24M SemiSolid platform of Giga scale and an important de-risking event from a financing perspective. As mentioned previously, we completed the successful offering of 23 million ordinary shares placed with institutional investors in early December at $11.50 per share, raising gross proceeds of $264.5 million. Net proceeds of this offering are being used to continue progress on Giga Arctic, while working to complete its project financing, begin project development spending on Giga America, and for general corporate purposes. We will now also expend significant effort in evaluating options to accelerate our U.S. strategy to address the U.S. battery market and energy storage solutions sooner. Accelerating in the US is key to taking advantage of both the extremely robust battery pricing and demand for batteries in the U.S. and the spot market as well as the IRA. With respect to project financing, we are deep into the second phase of this process with Giga Arctic, which is the due diligence phase being led by five consultant covering engineering and technology, market and supply, ESG, insurance, legal and documentation for the benefit of the lenders. We have also initiated discussions on the long form term sheet with our mandated lead arrangers in preparation of bringing the project to bank syndication. While we will continue to make progress, it is important we understand where the EU and Norway are likely to land in terms of response to the U.S. IRA before launching a formal and broad syndication process. Depending on those responses, timing of the Giga Arctic project financing could extend beyond the second quarter. In the meantime, our efforts will continue on satisfying lenders' due diligence requirements, emphasizing the acceleration of U.S. development and, of course, enabling the CQP ramp up, which itself is a key driver of overall financing timing. As I mentioned in the Q3 report, I should further add that we continue to field and evaluate capital formation opportunities and interest from a wide range with existing and potential, commercial, strategic, and industrial partners, as well as financial institutions. This interest appears to be driven by the widespread belief and robust fundamentals behind the long-term expected growth for the battery demand for both ESS and the EV markets and the incredible progress FREYR has made since its New York Stock Exchange listing 18 short months ago. We strive for partners who believe in FREYR's mission and grow along with us as we evaluate and take down projects like Giga Arctic, Giga America, the potential for upstream integration, our entrance into the mobility market and other opportunities. Again, our US initiatives and the Inflation Reduction Act have acted as a catalyst for such discussions, when we see the ramp of the customer qualification plan as yet another major commercial and financial catalyst. We are grateful for the ongoing support of all of our financial and industrial partners, especially our shareholders and our progress on all fronts, as we are -- as well as the continuous improvement in the demand outlook for our products and the urgency of addressing climate change being demonstrated by businesses and governments around the world. With that, I'll turn it back over to Tom for closing comments.
Tom-Einar Jensen: Thank you, Oscar. What a year it has been and what a year we have in front of us. Let me then summarize with the following. FREYR is moving into live battery production and we are ready for the challenge. FREYR is accelerating our U.S. efforts to capture the opportunity with the U.S. technology, and global partners. FREYR is becoming a multi-project company from a geography, value chain and technology perspective. FREYR has deep interest from a large number of financial, industrial and strategic partners to support our growth. FREYR is, in short, on track to become a global champion in the clean battery solutions space. Finally, I would like to thank all our investors for your support and your patience. My main advice to you all is to stay long or should I say go longer. Let me finally remind you again of the upcoming event on March 28. The preface is over. Chapter one and the clean battery solutions history starts a month from today. Stay tuned for more. As the excellently put it, we commit to deliver and we deliver on our commitments. With that, I hand it back to Jeffrey to guide us through the Q&A session.
Jeffrey Spittel: Thanks, Tom. Operator, I think we're ready to open up the line for questions, please.
Operator: Thank you. And our first question today go to Gabe Daoud of Cowen. Gabe. Please go ahead. Your line is open.
Gabe Daoud: Thank you. Hi, everybody. Thanks for all the prepared remarks, really helpful. Tom, maybe if we could just start with CQP. Obviously getting pretty close here to first production, I guess, targeting 2Q 2023 for the real ramp. But just curious if you can maybe give us a little color around timing to really that gigawatt-hour scale that you're targeting. So how long do we or how long will it take to get to that certain level of production? And then maybe the follow-up to that would be what -- your customers, in order to convert the firm off-take from just conditional, how much volume do they really want to see? Do they want to see the CQP really get up to that gigawatt-hour level of scale? Just trying to get a sense of the timing around that.
Tom Einar Jensen: Yes, good morning, Gabe. Thank you for that question. So, of course, the 28 of March is an important date for us when all equipment will be on site. We basically start operations of the CQP. As we have talked about previously, the customer qualification plant is an actual gigawatt hour scale facility, but we're not going to run it as a commercial facility. We're going to run it to test different solutions, to train our operators, to qualify new equipment, and to continuously improve the SemiSolid platform over time. In terms of volume of batteries that our customers require, so there are a couple of things there that are important to keep in mind. First of all, as we mentioned during the prepared remarks, we have already sent samples of batteries from 24M, especially to Nidec, which showed excellent characteristics and very strong performance. Our first objective, which is going to be key for the Nidec off-take agreements, which by the way is not conditional but firm, but we need to deliver batteries from the CQP that at least deliver as good performance as the batteries produced in 24M. The difference between the ones produced in 24M and the ones that we will produce is a larger form factor. But the chemistry, the cathode and anode material going into it will be the same. We don't require a huge amount of batteries per customer to qualify that. So, during the second quarter we will ramp up production and we will start to test these batteries with our customers, most likely on-site in Mo i Rana, but also at third party lab. So, during the second quarter of 2023, we should see a lot of progress in terms of both validating what we've already demonstrated with Nidec from batteries produced at 24M, now produced at the CQP in a gigawatt hour scale facility and with all the other off-take agreements we have, which will also then start testing the batteries produced from the facility in question. When all of that is done and this will always be a continuous journey not stopping in the second quarter, but going into the third and fourth quarter and first quarter of next year, we will also gradually increase the speed, increase the yield, increase the availability of the equipment and that is also another feature that is going to be important. So we need to be able to show that we can extrapolate performance from the CQP in to the Giga Arctic facility. The good news is that all of our customers have very aligned incentives with us and all of the 24M ecosystem and the ones that are relevant in this regard will be on site to support the scale up and the development.
Gabe Daoud: Really helpful. Thanks, Tom. And then maybe I guess as a follow-up pivoting to Giga America. Can you maybe talk a little bit about the order of operations there? I guess maybe a bit of a chicken or egg scenario there as well. But -- so as far as strategic to potentially writing a check, do they want to see more from off-take, but then also from a customer standpoint, because they want clarity around timing of start-up, which I guess requires capital. So how do we think about Giga America? And how that could truly be accelerated alongside Giga Arctic?
Tom Einar Jensen: Well, so I think we see a variety of different levels of interest, right? Some who are ready to step up to the plate and "take more risk" and some who would like to see more data and more sort of results coming out of the CQP. But I do think that the interest in participating in developing Giga America is a function of many things, it's not only a function of what we do in the CQP, it's a function of perspectives around the IRA. It's a function of actually having a viable business case which as Jeremy alluded to, we are working on various different options from, let's call it, brownfield type options to more fast-tracking first couple of production lines from a larger greenfield development. All of which we are in the coming weeks going to narrow down into a specific development plan. And in parallel with that, we are presenting these options to a number of these strategic industrial and financial partners, and I have to say the interest is very strong. So yes, you are right in the sense that this is somewhat of a chicken and egg problem, but I will say, it's much more of us deciding on how we want to go and then deciding on what partners to bring into that equation.
Gabe Daoud: Understood. Thanks, Tom. Thanks, guys.
Tom Einar Jensen: Thanks, Gabe.
Operator: Thank you. And the next question goes to Julien Dumoulin Smith of Bank of America. Julien, please go ahead. Your line is open.
Alex Rabell: Hey, guys. It's Alex Rabell on for Julien. I appreciate you guys taking the question. Just to follow on a little bit on the U.S. story here with Giga America. I'm curious if you guys have thought through it all sort of the ability to possibly monetize tax credits upfront as a source of capital? And also if we think about a fast track, you're talking 34 gigawatt hours, eight lines. I mean, is there an opportunity here just to do essentially like an equity based startup take the risk on balance sheet effectively and then try to branch into more strategic from there? Thanks.
Tom Einar Jensen: Thanks for that question. I'm going to have Oscar chime in on this one. Oscar, can I hand it over to you to provide some color on monetization options and how we're thinking about different development solutions?
Oscar Brown: Yes, certainly. Thanks, Tom, and thanks, Alex. So yes, for sure, there is great opportunities to monetize these tax credits. And as you know with the IRA, a lot of the monetization options have been simplified relative to past laws. So we're looking forward to that. We've talked to several of the commercial banks in the U.S. and other investors on how to do this. So the key question will be, can we pull that, how far up can we pull that, how close to production and what volumes can we do to finance all of that, so that's sort of evolving in the market real time. But we do see an opportunity there. And just to remind you, we did some math on Slide 10 to give you a sense on how hugely impactful it is to the economics of sort of the giga scale production centers. So for sure, that's developing and we'll see, but we think that can happen. Tom, I will flip it back to you on just -- on how you want to address the sort of different options for Giga America?
Tom Einar Jensen: Yes. So, maybe I'm going to hand that over to Jeremy, who is also on the call to talk a little bit in more nuance around the different options that we're looking into for a fast-track Giga America development. Jeremy?
Jeremy Bezdek: Thanks, Tom, and thanks for the question. Yes, I mean, I will put it this way, the team, as I mentioned earlier in my remarks, is really on a sprint pace to figure out over the next four to six weeks the best options that we have in place. Tom mentioned a couple of those in his answer to the last question, which could involve maybe a couple of early initial lines that could move fast. We've got a couple of different options around the land that we have acquired that we're evaluating as well. And so, it's not overly defined yet, but it will be over the next four to six weeks as we narrow it on, quite frankly, bringing into production -- the start of production timeline from 2026, which we had talked about previously into 2025, the team is hard at work, and it's sort of -- this is a bit of we're announcing an acceleration approach and we'll be coming back with the actual plan here over the, like I said, in a very short period of time. So I wish I had more to describe at this point, but it's quite frankly, it's something that is evolving very rapidly with the team right now.
Tom Einar Jensen: Let me just complement a bit. As part of that, Alex, we're also looking into the financing of these different options as well, which, of course, is a function of the partnership based discussions on strategic industrial and financial side up against whatever option we are evaluating. But I think you are sort of directionally quite astute when you're asking the question. We're obviously thinking in the same lines how fast can we get real production up and running and what is the kind of path of least resistance in that, it's clearly something we're evaluating. So stay tuned for more updates on this. The main message is, we're moving as fast as we can to capture the IRA benefits as quickly as we can. And now, that we're starting to produce batteries in the CQP we have a different kind of platform from which to accelerate.
Alex Rabell: Got it. And I appreciate the color here. Just on the Giga Arctic piece, I'm just, like I said a housekeeping point, when we look at the capital spend back out, I guess, the land spend for Georgia, it seems pretty similar to Q3. So, curious if that's sort of a ratable run rate you to think about here as far as what you're willing to allocate currently on Giga Arctic? And then, curious if you could expand a little bit of as far as this European IRA piece what do you think that might look like as far as a response and sort of what keeps you confident on the parallel investment method that you're sort of laying out here? Thanks.
Tom Einar Jensen: So Oscar, I'm going to ask you to answer the first part of the question, and then I'll weigh in on the IRA or the localized IRA response in Europe.
Oscar Brown: Sure, yes. So it's not a bad run rate in the third -- in the fourth quarter. I think we'll be a little bit under that. In the first few quarters here, we made a lot of progress on the building and, of course, watching what's going to happen in response to the back half of this question in terms of Norway on the IRA might change your sort of view on how fast we could move and want to move on CapEx. But our plan is to sort of within any moment of our available cash to make sure we've got enough to cover some progress on all these projects. We have to finish out the CQP. Giga America going and then continued progress on Giga Arctic. And then, still have a run rate -- a runway of a couple of years of cash as a safety buffer for overall burn rate. So we're not giving out a specific guidance, but we're sort of in line with the board approvals that you've heard about from previous quarters. Tom?
Tom Einar Jensen: Yes. When it comes to the localized IRA response, there is a broad variety of tools that are being discussed and investigated both at the European Union level, as well as at the national level. I think it's fair to say that the Norwegian Government will largely follow what the European Union will advise and that is an ongoing quite heated debate which sort of spans from, let's call it, CapEx related incentive mechanisms to accelerated depreciation solutions to production tax credit and direct grants, et cetera. So we are evaluating all of these and looking at and advising, let's call it, our counterpart in the Norwegian realm, so to speak, on what would work best for us relative to what we're seeing in the U.S. So it's too early to say exactly what it's going to be, but we are optimistic that it will be significant, and it will definitely improve significantly the economics of Giga Arctic so that it becomes closer to what we're seeing under the IRA. But to expect that you'll have a one-to-one response to the IRA is probably not something that we are too hopeful of. But that it will be material and dramatically improve the underlying profitability of what is already a reasonably profitable project is something that we're quite confident that will happen. But the jury is still out. We are deep into those processes with the relevant stakeholders, and we will be providing updates on this as and when they emerge.
Alex Rabell: Got it. Thanks, guys, congrats.
Tom Einar Jensen: Thanks, Alex.
Operator: Thank you. And the next question goes to Philipp Koenig of Goldman Sachs. Philipp, please go ahead, your line is open.
Philipp Koenig: Yes. Thank you very much for taking my question, and thank you for the presentation. My first question is just on the coming back to the pivot to moving faster in the U.S. I guess for how long are you willing to wait for European or Norwegian response to the IRA and how long are you going to continue to invest in the progress on both factories? And does that also sort of dependent on how quickly you can maybe get external capital in terms of progressing in the U.S. or how long are you willing to spend CapEx basically out of your own pocket? And then my second question is just sort of a bit on the commercial side. You referenced no potential discussions with OEMs for your LFP technology. We are clearly seeing a huge interest and uptake of LFP by lots of Western OEMs. I know you are initially targeting in so far in most of your off takes have been in the ESS space. But do you see passenger car OEMs now as a possibility for FREYR? Any color there would be very much appreciated. Thanks.
Tom Einar Jensen: Thank you, Philipp. So, on how long I would -- so, this kind of a -- it depends, right? I mean, at the end of the day, we are currently comfortable to pursue both projects in parallel. As we are describing in the materials, we're continuing to develop Gig Arctic at a measured pace while being leads into conversations and processes to see what the localized incentives will end up being. We're talking about weeks and months here before we see clarity on this. And then we will evaluate what that potentially does again to the project finance process primarily because that's kind of the main elements in this. As we have alluded to before the project finance is a function of the performance of the CQP and to some extent the relative economics of a project in Norway relative to its similar project in America. So we will be measuring this and monitoring it closely and we will be carefully pushing forward both projects, and as again, we're optimistic that the responses will be material, and that they are happening in the near term. And then we'll come back to the market, as mentioned with the consequences of those actions, when we see them more clearly. So far the signals are reasonably optimistic, but let's see what happens when the European Union decides and how Norway sort of response to that. Good news is as mentioned also exemplified by announcing the National Norwegian Battery Strategy, when we announced Giga Arctic last year in June, you can imagine that we have reasonably strong access to the relevant decision makers when it comes to understanding how these incentives will be implemented. So that's on that piece. When it comes to the OEM interest and, just to be clear, we are aspiring to be an industrialization partner of choice. The 24M technology is relevant for ESS and e-mobility applications today. It could be relevant for EV applications in the not-so-distant future. But in parallel, we have, as mentioned, interest from large battery manufacturers from Asia who want to come to Europe and partner with us and/or partner with large OEMs to develop LFP-based supply. You're absolutely spot on in indicating that the large OEMs are increasingly looking to LFP supply to drive down cost. Now that battery packs are becoming better, larger and the sort of system level design of these are improving, cost is coming back into the picture and high-nickel content batteries will, to a large extent, be replicate -- or replaced by LFP-based solutions. One conversation we're having indicates that half of a very large OEM's needs will now be pivoted to LFP and being an LFP-focused company is providing us with additional opportunities. The final thing I'll say on this is we have announced our ambition to, over time, localize cathode active material production of LFP in Europe and more specifically in the Nordics. And we have announced our -- or it has been announced the partnership that we have with Finnish Minerals Group. So we are looking into localizing large-scale LFP capacity there. And this is also something that we're not doing in vacuum. We're doing that together with potentially the large partners, the large OEMs and the others that need localized decarbonized LFP supply into an increasing, let's call it, need for that. Today, most of it, if not all of the LFP batteries, are sourced from Asia, and we will be one of the larger producers of LFP batteries as well as potentially material for the same. So this is a very strong situation and setting for us to be in. Exactly how it's going to turn out is not clear yet. And when it is, we will come back to the market.
Philipp Koenig: Thank you. Maybe if I just ask one quick question on the CQP, it seems like Nidec sort of have -- first call on the first sales that come off the line, is that sort of fair to assume because you already have a firm agreement with them to sort of verify and validate the quality of the cells?
Tom Einar Jensen: That is absolutely fair to assume.
Philipp Koenig: Okay. Thank you.
Tom Einar Jensen: Thanks Phillip.
Operator: Thank you. And the next question goes to Nili Eslah of Clarksons Securities. Nili, please go ahead, your line is open.
Nili Eslah: Hi, everyone. How -- certainly, I would like to continue on CQP, just any comments on, about financing. And as it says that the ramp-up -- the Southern ramp-up of production at CQP will get capitalize different large major milestones, but what part of the financing is just dependent on other will start or ramp up or could you provide guidance on that?
Tom Einar Jensen: Yes, I'm going to ask --
Oscar Brown: Yes, this is Oscar maybe I'll start --
Tom Einar Jensen: Yes.
Oscar Brown: So thank you for that. So yes, so the project financing is a key piece for Giga Arctic that has conditions precedent in the term sheet that we're negotiating that relates to many things but primarily, or in part, the CQP production, so getting it ramped up, testable batteries as we've talked about, an acceptance by our primary customer, in this case, Nidec. So that's a key timing item. In terms of -- and we've been in the market already with the market sounding and then, of course, working with our mandated lead arrangers and all our ECAs and other financiers on progressing the project. Formal syndication will be a judgment call based on sort of seeing some activity out of the CQP combined with whatever response we see out of the EU and Norway to sort of kind of complete the full financial picture. So that's the primary driver. It does impact other financing activities. People want to see something come out of the CQP and how it looks. But a lot of those discussions, particularly with strategics are already pretty deep and high on the technical side. So we don't anticipate huge timing implications around that until -- while we ramp up the CQP as long as it's going well. Sorry, Tom, you might want to add something?
Tom Einar Jensen: No, I think that was an astute answer.
Nili Eslah: All right. Great. Thanks for that. And if I can follow-up on securing raw materials, I know you have two deals, but could you remind us of how far ahead of time, you have that for? And then beyond that point where do you see probably the largest bottlenecks besides the lithium? And how do you go on to securing those?
Oscar Brown: First of all the securing raw materials has gone out for quite a while, and as I've said in the call, we also had secured everything that is needed now for the startup and ramp up of the CQP and lots of material has already been delivered to Mo i Rana. So the next step is obviously to start committing to the volumes necessary for the Gigafactories. And as I also indicated, we are actually now approaching suppliers also for Giga America. And I think we have approached approximately 20 suppliers. Some of them actually located in the U.S. Criticalities as you commented yourself on lithium supply. And I think that's extremely important for us to continue to broaden our sourcing strategy on that one. We have different alternatives in addition to the one that we're developing ourselves as Tom indicated, we have, as you were probably remember, we have a license agreement with Aleees of Taiwan, and obviously we need to continue to expand on that one. And I'm not sure if it is correct to go into the details here, but yes, that's probably the most important one. And going from there, I think you will come back to that when we announce more commitments for raw materials.
Tom Einar Jensen: I think as we have said before we are largely covered for the raw material needs in Giga Arctic up to 2028 and we're continuing to evaluate additional opportunities to both drive down cost further and to localize and decarbonized the production of its. Again this is not something that we will do on our own. We will do it in deep strategic collaboration with others tapping into the large demand for LFP solutions, but also other critical raw materials going into the production of batteries in a localized context. Remember, to secure battery production in Europe and in the United States, it's not only about battery cell manufacturing. It's also about the critical raw materials going into it. But in the early stages of the battery cell manufacturing ramp-up, you will need to rely on existing supply chain, which predominantly are in Asia. And as we gradually pivot from an Asian supply to a localized supply, we want to be a catalyst for that as well but not necessarily as the dominant owner in it but an off taker and a strategic partner to unlock a sustainable, decarbonized and localized supply.
Nili Eslah: Great. Thanks for taking our question.
Tom Einar Jensen: Thanks, Nili.
Operator: Thank you. And the next question goes to Adam Jonas of Morgan Stanley. Adam, please go ahead, your line is open.
Adam Jonas: Thanks, everybody. Just the first one, if you could remind us what's the minimum reject rate that your partners would consider from the CQP, what would they consider a success in order to sign binding agreement that essentially a ramp?
Tom Einar Jensen: So Adam, thank you for that question. So I think first and foremost, they need to see that the form factor that we are producing, the 56/10 form factor which basically is a 56/10 centimeter large electrode is actually performing in accordance with the electrochemical performance that's the example that came out of 24M, that we recreate that. We will have low yield and low uptime of the facility in the early days. As you know, this will gradually be moving towards our targeted overall equipment efficiency, which is a function of uptime and yield, and as long as we can show that there is progress in the movement on both yield and uptime that is from a Nidec compensation point of view good enough as long as we replicate the electrochemical properties of the initial samples. Then we have various activities and roadmap established which we have been very transparent on together with our customers. And as long as we are trending inside these roadmaps that is what should suffice at least from an Nidec point of view, and this will be the same approach that we will take also with our other customers. So expect that we will be reporting on yield and uptime on a regular basis over time, they will start off very low, we will have a lot of issues and problems. We have identified that as I mentioned previously, more than 1,500 potential sources of error and established standard operating procedures for all of them and probably we will have twice as many problems. So, but at least we have a good start in that. We're also working actively with the relevant stakeholders in the 24M ecosystem to support the ramp-up from an experience of SemiSolid production point of view, but also from a high-speed coating based manufacturing process point of view as well as working with Nidec to provide scaling expertise as they are deep into sort of scaling energy intensive processes in their own field. And many of these things are transferable to the challenges that we will face, but it's of course, a combination of electrochemistry plus mechanics plus many different things. But as long as we are trending in the right direction and as long as the electrochemical properties of the initial batteries that we produce with high reject rate are within the tolerances that we have previously demonstrated that will be good enough for Nidec.
Adam Jonas: Thanks, Tom. Oscar one for you, any precedence from your extensive project financing experience on monetizing the pull forward of tax credits or are we kind of an unchartered territory. I didn't know if there's anything in the oil and gas world that we think could compare to that?
Oscar Brown: Yes. Thanks, Adam. Yes, there's actually more in sort of solar and other sort of renewables is probably more comparable. And I think we have seen, in the past, typically, that financing comes in right around plant completion. So the trick here is -- and so it would be a development, I think, in this market. But given the ease of monetization, we're hopeful and optimistic that there may be an opportunity to pull that forward some from plant completion to a little bit ahead of that. And so that's kind of what Tom was alluding to. So at a minimum, we think around the time we completed a plant that you can monetize the forward production, especially if they're under contract, and so we'll have to balance that because we do think the merchant market is pretty great right now. But it would be -- it's my understanding is it would be a little bit of a development to pull that forward. But that might translate into how the banks are willing to commit to financing a little bit ahead of time. So there just may be some benefits. This is sort of evolving real-time as people improve their understanding of the IRA, which is quite good. And of course, we'll see what the treasury regs say to clarify anything, but it's pretty straightforward. So we'll see. But we've got a few months to sort of figure out with our counterparties how it might work.
Adam Jonas: Thanks a lot, Oscar. Thanks everybody.
Oscar Brown: Thanks Adam.
Operator: Thank you. And the next question goes to Maheep Mandloi of Credit Suisse. Maheep, please go ahead. Your line is open.
Maheep Mandloi: Hey, good morning . Thanks for the questions here. Just on to the U.S. factory, you talked about accelerating the build out here, could you just talk about the timing as it like early 2025 or mid and as you kind of like, look at the module manufacturing also, could you remind us of the CapEx for module manufacturing is included in that initial estimate? Are you expecting any revision to the CapEx guidance?
Tom Einar Jensen: Maheep, thank you for that question. As Jeremy alluded to, we are neck deep in evaluating the different scenarios and different options that we have in front of us, initial couple of production line, brownfield, greenfield, first step equity finance, project finance, different sort of partnership arrangements around it. So it's a little bit too early for us to be concrete as to sort of when we believe we can start up. So we say 2025 for now, and then we'll be more specific in terms of what that looks like when we have done the initial investigation. What also Jeremy alluded to was that we are, as part of that, also evaluating module and DC block kind of development because a number of our customer engagements in the U.S. don't necessarily only need battery cells, they actually want a final ESS product. This is obviously something that we are developing together with Nidec in Norway. And we're looking into various options as to how we can also play in the downstream area of that. As you know, the CapEx related to that relative to cell manufacturing on a per kilowatt hour basis is significantly less. But let us come back with more specific estimates on that when we've done the work in the next four to six weeks.
Maheep Mandloi: Got you. And then something more timely some news earlier today on China, potentially reducing supply -- lithium supply from one of its hubs in Yichun province. Just curious, like, how does that, like, global supply of lithium kin
