FREYR Battery (FREY) on Q2 2022 Results - Earnings Call Transcript
Jeffrey: Tom Einar Jensen - Co-Founder and Chief Executive Officer Jan Arve Haugan - Chief Operating Officer and Deputy Chief Executive Officer Oscar Brown - Co-Founder and Chief Financial Officer
Operator: Good morning and welcome to today's FREYR Battery Second Quarter Earnings Conference Call. My name is Candice and I will be your Moderator for today's call. All lines have been placed on mute during the presentation portion of the call with an opportunity for question-and-answer at the end.
Jeffrey:
Jeffrey Spittel: Good morning, good afternoon and good evening. Welcome to FREYR Batteryâs second quarter 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; and Oscar Brown, our Chief Financial Officer. During todayâs 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 FREYRâs control and are difficult to predict. Additional information about risk factors that could materially affect our business are available in FREYRâs 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, good afternoon, good evening, everyone. A true pleasure of course to welcome you back to our fifth quarterly report for our second quarter earnings of 2022. Since the first quarter earnings call, the momentum around value has increased significantly and today among with myself, Jan Arve Haugan and Oscar, we'll take you through the status and progress and outlook of the company which continues to strengthen on an accelerating basis. So we'll take you through a broad variety of updates in the company and I'll do that as stated together with our Chief Operating Officer and our Chief Financial Officer. As stated last time, we're starting to look like a battery company and we are now increasing our ambition levels based on our demonstrated ability to deliver on commitments and the increased market demand that we're seeing manifesting itself across all market verticals. Lithium-ion batteries is a solution which increasingly can support an accelerated energy transition and can provide direct or indirect support for close to 75% of all climate mitigating targets. A lot of players are entering this space, but only the ones who move at pace and build at scale, and pay true attention to sustainability will pervade. We are increasing our penetration across the board with customers, technology providers, investors, governments, talent, raw material providers, and equipment suppliers to name but a few. We see very strong momentum to accelerate delivery of modularized and scalable solutions for clean battery solutions, while an increasing number of customers are increasing their appetite for the same. When we started FREYR, more than four years ago, we had a dream on what we could become, but we had not envisaged that we would be able to move as fast and as forcefully as we have. We are more than tenfold of the organization over the last 18 months and implemented, what I dare say is a world class industrialization system resonating with an increasing number of stakeholders around the world. Demand keeps increasing and our customers need both, that we speed up in our delivery at the same time as we deliver the most cost competitive solutions to reduce energy inflation, which is all around us at present. We are doing all of that and in a sustainable manner and I'm very proud to say that we are largely on track, even in the most challenging macroeconomic environment seen for decades. This is due to deliberately and diligently building up an organization based on the century long experience Norway has in producing and exporting energy, energy intensive and process intensive products in both direct and indirect forms. Today, it is on track to deliver on our previously stated ambitions by 2025 and we are doubling that ambition in the following three years, and then doubling that again two years after that. Size does matter in this business and the market situation and our increasing number of customers demand it. We now have more customer dialogues ongoing than what we realistically can cover and that is a very good situation to be in, which all-in-all leads us to double our target capacity installed globally to 200 Gigot hours by 2030 across multiple geographies. As in any renewable industry, analysts and consultancies are just not able to keep up with the pace of development, and this manifests itself over and over again in the battery industry. Demand forecasts are constantly changed upwards, and this trend has been even more pronounced in the industry that we find ourselves in. What is very encouraging for FREYR is the massive underlying momentum that we're now seeing manifest itself in the energy storage space, which some argue could and should more than 40 fold by 2030. We don't disagree to this statement by the way. We do however, target all market verticals, but we could, if we wanted to dedicate all of our focus entirely on the storage space in applications, as there is more than enough to do in this space alone for FREYR's organization for decades to come. We do however, see that our industrialization partner of choice approach, coupled with the cleanest battery solutions, attract a lot of interest from existing, as well as emerging players across all verticals and across all geographies. Our aspirations currently of 200 gigawatt hours of installed capacity by 2030 will make us a relevant player on the global arena, but as these illustrations suggest, if anything, the risk is on the upside as long as we continue to deliver on our promises. Having a broad spectrum of customers across the market verticals that we are targeting and the industries that we're engaging ourselves in, will allow ourselves to optimize our customer portfolio and therefore be value accretive to our investors in what we believe will be a massively market short environment for the coming decade. A core part of this interest is driven by our relentless focus on stating what we want to achieve and then reporting against these achievements. FREYR will always be transparent and direct about our status and progress and so far, we have been able to overcome a number of challenges and keep momentum. This is driven by our mantras of speed, scale, and sustainability, and to be able to report that we are on track for starting production for Giga Arctic in the first half of 2024 and that we are on track to have all equipment installed in the custom qualification plant by year end, is something that I'm deeply proud of being able to reconfirm to our investors. Governments have an important role to play in this very capital intensive industry and we have very strong support from the Norwegian Government and we are very encouraged by the inflation reduction act announced in the U.S., which Oscar Brown, our Group CFO will cover a little bit later. We therefore see that we can leverage the Norwegian development even further and accelerate our plants in the U.S. and we very much look forward to announcing our choice of site in the U.S. already later this year. We should be able to start up what we now label Giga America in the 2024, 2025 timeframe at an even higher capacity than the Giga Arctic, which will deliver our current ambition of 50 gigawatt hours installed by 2025. Let me talk quickly about Giga Arctic. This will be our flagship development and it's becoming a showcase for us and we have upsized and improved this facility several times through our excellent organization. We now believe we can build 29 gigawatt hours of LFP capacity, which is almost three times larger than what the equivalent facility Giga 1 and 2 would be as we announced when we went public on the New York Stock Exchange last year. This facility will be one of the most modern battery facilities in the world in stunning environments in the north of Norway inside what we believe is the best and most effective industrial park in Norway. We've already cleared ground and we are working day and night to pour concrete and established foundational works so that we can be ready to start up this more than 120,000 square meter facility, which will be one of the most, if not the most efficient battery facility worldwide. In this context, it is extremely encouraging to see how capital effective this facility will be compared to all other facilities in Europe in operation or under construction. This very strong capital efficiency is primarily due to the highly space efficient nature of the 24M technology as I've talked about many times, coupled with our upsized facility compared to previous, and our excellent project execution centric organization leadership who have been able to optimize the capital efficiency of this facility. As the world needs to build hundreds of Gigafactories over the coming decades to keep up with demand in the market segments I just alluded to, finding the most capital efficient solutions will be key to success and therefore we are extremely encouraged to have this highly comforting stopping point. We are very proud to be the first to take the commercially proven 24M technology to gigawatt hour scale and we will lead the way into next generation lithium-ion battery solutions. On top of this, we will also be able to produce more than 200 times more batteries per employee, than current conventional lithium-ion battery solutions, and we will use 100% renewable and ultra-low cost electricity to deliver on those battery production capacities. So the future of FREYR looks very strong indeed, and we have a very strong cost competitive starting point to replicate around the world. This is then what the Norwegian Government has been seeing as we have been in intense dialogue with them since we started to make ourselves known in the Norwegian scene some four years ago. And six weeks ago, the Norwegian Government decided to launch their National Battery Strategy on site together with FREYR in Mo i Rana, clearly a testament to our leading position in the Norwegian battery industry. Norway aims to become a leading nation, not only in battery cell production, but across the entire battery value chain and our very close relationship with the Norwegian Government and all Norwegian institutions is cementing our position as the lead in Norway. This deep financial, strategic, and political support, unlocks additional value creating opportunities, including the establishment of the entire value chain and battery ecosystem in Norway and the Nordics. And the Nordics is emerging as a core hub for battery production and the materials going into it. We are very grateful to the Norwegian Government who will now channel Norway's century long experience in energy, energy intensive, and process intensive industries, and apply this to the battery ecosystem. Let me now hand over to Oscar Brown, our Group CFO, who will bring you our perspectives on the Inflation Reduction Act in the U.S., which is already accelerating our activities in our plans in the U.S. together with our excellent partners, Koch Strategic Platforms co strategic platforms. Oscar, over to you.
Oscar Brown: Thanks Tom. And on Slide 11 with just a few of the highlights noted, I can say we were quite excited to hear about the U.S. Inflation Reduction Act, which would have an extremely positive impact on FREYR's ongoing efforts to establish a major manufacturing presence in the United States. As proposed, FREYR would benefit directly and indirectly from the bill and it certainly has accelerated our ongoing efforts with Koch regarding our U.S. joint venture to build what we are now calling Giga America. As Tom mentioned, we have narrowed our site selection from nearly 150 potential locations to less than five and anticipate announcing a decision in the near future. The Inflation Reduction Act would benefit FREYR and Giga America in a number of ways, including a $35 per kilowatt hour tax credit for cell manufacturer in the United States, a $10 tax credit on the manufacturer of module impact, and a 10% tax credit related to the production of anode and cathode materials in the U.S. As important, the simplified ability to transfer and monetize these tax credits, including a direct pay option is incredibly helpful to high growth companies like our own. These benefits should substantially improve the economics of U.S. Gigafactories, stimulate already strong demand for energy storage system products, and battery storage development projects in the U.S. by reducing cost and facilitating U.S. supply chains, thus also reducing the industry's carbon footprint. The bill also includes a number of direct benefits for our customers as well, including an investment tax credit for standalone energy storage developments, meaning no need to tie these storage developments to specific solar or wind projects to claim the credit. For FREYR, this bill is a catalyst for our U.S. strategy, much like than Norwegian National Battery Strategy was to us in Norway. We said last quarter, that FREYR is part of the solution for energy security, energy inflation, and climate change. These initiatives by the governments of the United States and Norway will accelerate our mission. Moving now to Slide 12 of the earnings deck, I will review our financial results for the second quarter and the first six months of 2022, as well as provide an update on our Giga Arctic financing initiatives. For the quarter ended June 30, 2022, FREYR reported net income of $4.7 million or $0.04 per share compared with a loss in the same period last year, which predated our New York Stock Exchange listing. For the six months ended June 30, the company reported a net loss of $30 million or $0.26 per share. The reason for the reported net income at this stage of the company's growth has to do with the warrant liability fair value adjustment of $33 million in the second quarter and $25 million in the first six months of the year. This liability moves around period-to-period based upon among other things, the company's stock price at each period end generally reporting gains on the stock declines and losses when the stock rises. More importantly for us today is our cash investment rate. We spent net cash of $36 million during the second quarter and $77 million for the first six months of 2022 ending the second quarter with $488 million of cash and equivalents and no debt. 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 initial spending on our U.S. Gigafactory joint venture with Koch, our proposed project in Finland and other business development activities. As mentioned last quarter, the mix of CapEx and OpEx will skew more towards capital expenditures in the future, particularly as Gig Arctic -- as the project matures. With FREYR's Board approving some incremental spending and commitments to continue progress on Giga Arctic and maintain our scheduled start of production in the first half of 2024, we expect our expenditures to increase in the third quarter and for the second half of 2022. Additional spending beyond Q3 will be dependent on continued progress on the ongoing commercial and financing initiatives. With respect to financing, we announced in late June, we had identified in excess of $1.6 billion of potential credit support for Giga Arctic at the same time as the Norwegian Government announced its National Battery Strategy at our construction sites in Mo i Rana. Last month we formally launched stage one of our project financing process. We've approached 14 commercial banks led by our two mandated lead arrangers, as well as four export credit agencies, including Eksfin and two multilateral development finance institutions, or MDFIs, the Nordic Investment Bank and the European Investment Bank. This first stage with these 20 institutions is a market sounding process, which both continues to educate the credit market on our story specifically, and Gig Arctic and requests, indications of interest and feedback regarding targeted gearing, pricing of the various credit facilities, key credit ratios and the like, as well as amounts each institution could potentially commit to, all subject to due diligence and formal credit approval. We expect this feedback later this quarter and all indications so far are very positive. In addition to the indications we've already received earlier this year from Eksfin, the EIB and the NIB totaling up to $800 million, we've also received several favorable early indications of interest from our commercial banking partners. The next stage will be launching later this month, which is the formal project financing due diligence process. As many of you may appreciate, it is quite thorough and involves a large number of external consultants. Following due diligence, we are targeting formal credit approvals toward the end of this year and financial closing in the first quarter of next year. We're incredibly pleased with the ongoing support of all our financial and industrial partners, including our shareholders and our progress in all fronts, as well as the continuous improvement and demand outlook for our products and the urgency of addressing climate change, being demonstrated by business and governments around the world. With that, I'll turn it over to Jan Arve for the operations update.
Jan Arve Haugan: Thanks a lot, Oscar and hello to everyone. I will now try to give you an update on the operational status in FREYR. I will cover the development of the execution of the Customer Qualification Plant or the CQP as we label it. The preparation for the final investment decision and the project execution of the Giga Arctic, as well as the latest general project development for the next Gigafactories, before I finally give you an update on the supply chain status. First of all, the customer qualification plant was formally decided in July last year. Increased focus on the health and safety as construction now is moving from the manufacturing plants and into the installation phase. We can report no serious incidents. We have zero loss time incidents, and the total rate of incidents are also zero. And even more important, we have very good reporting or safety observations. In total 62 reports have been received to date. As can be seen from the latest pictures from the factory in Mo, the core part of the plant, which is the dry room is now completed as far as building and infrastructure is concerned. The air conditioning unit is now installed and tested. As per end of July, seven out the nine production line packages had either been completed the factory acceptance test or were in the process of executing the factory acceptance test. Shipment to that plant in Mo i Rana is now scheduled and the installation program is being detailed out. Our clear ambition is to avoid major carryover scope from the manufacturers to the installation phase. Optimizing the details can to some degree transfer scope into the installation program, but still under supplier separation though. We certainly see challenges. General supply chain is used logistics and COVID-19, as well as sourcing of semiconductors hit us too. But it's a token of appreciation to the project teams that openness and transparency, and in particular collaboration and corporation with the key suppliers are supporting continuous and joint problem solving and a work around planning. And I remind ourselves it's still 140 days until Christmas this year. Further on, the operational update. Let me share with you the latest status of the Giga Arctic project. FREYR passed a very important milestone in June when our internal decision guide number 3 was approved by the Board and we officially announced this. Imminently, the first concrete foundations were casted and our project team and the key contractors when mandated to initiate the detailed process design, as well as approaching the supplier industry for tendering of all key components or the production line equipment. FREYR's project execution team is now integrating all selected suppliers in a collaboration phase to complete the front end engineering design in order to release the technical specifications and the estimated bill of quantities for purchasing of the production line equipment. We plan to submit the first call off for long lead items and quick build parts structural steel this week. It is our main contracting strategy to develop firm agreements with key suppliers, primarily building on the competitive contracting for the CQP, where we secured options for the Gigafactory project program. However, competitive bidding will be used if the benchmarking of these options prove to be inflated. Project schedules, interfaces lead times, and integration is being planned in detail to meet the Giga Arctic startup of production date in the first half of 2024. At the bottom of this slide, you also will see a profile of the Gigafactory. And Giga Arctic has been used as a design basis for an optimized cell manufacturing plant. As we have stated before, the modularized and continuous process flow has been an important design criteria in order to support operational excellence and high safety and build on and on high yield of production. It is our clear conclusion that the 24M design can easily be replicated into other locations and support FREYR's strategic ambitions to meet the demand of batteries in other regions. Subsequently, we are currently maturing the concept design for an optimized cell manufacturing facility. That rapidly can be tailor made for the specifics of the locations. So let me please then share with you some thoughts in this following slide. This is a swift sketch on how we see the optimized 24M production system and how it can be organized. We conclude that the two core process lines can be arranged into one dry room. This will allow for what we call a tandem production by the operators. That means that a set of standard operating procedures can cover both lines. Further on, the four lines in one building structure and another four lines in the second structure, is an optimized arrangement for face capacity buildup and production ramp up all production lines, sectioned into a straight line labored. The I shape is the best way to arrange the process for continuous flow avoiding batch production to the highest extent. Uptime of the core process is of course then the key design criteria that will support the yield of the plant. Based on the overall layout arrangements and functional design criteria, the team now has built a design basis for this optimal plant that can be replicated. As can be seen on this slide, an eight-line plant will cover some 120,000 square meters building an optimal land plots is approximately 700 meters long and 230 meters wide cater for the inbound and outbound logistics at respective shorten, as well as an easy access to the process steps on the long side for maintenance and expected upgrades of the modularized production lab. So as Tom indicated, we are now currently evaluating different sites and we have started with approximately 150 sites in 25 states and its narrowed down to less than five shortlisted, where we are now in June. And the team is now continuing, they are narrowing down based upon the latest input from the different shortlisted locations and we are, as indicated by Tom, proved soon to decide which one of those locations that we will go for. In Finland, we also have the MOU with the City of Vaasa that provides FREYR with an exclusive right to 130 hectares site for the battery cell plant. Their own work is already ongoing, and we can -- we are ready to start construction in Q4 or 2022 if that is decided. There is one more plot next to ours, which it currently reserved for other operations, but might become available in November, 2022. The governmental support is of higher importance to FREYR, and we are well aligned with the Vaasa local municipality and with the Finnish authorities. Last but not least, from an operational side, let me now give you an update on the supply chain. First, we have now secured a PPA with a Norwegian-based energy producer Statkraft, for the dedicated production of guaranteed renewable energy to the Giga Arctic plant and to the CQP. We can again confirm that this PPA is agreed at very competitive rates and very good conditions. The primary task today for us is to secure raw material to the CQP and at the same time build the security of supply for the commercial production in Giga Arctic. This is all based on the 24M technology with pre-qualified suppliers.
ITOCHU: Supply teams are now meeting all the suppliers for quality control, ESG-related checking and building the relations while sharing the strategy of FREYR going forward with the suppliers. Increased focus on qualifying additional suppliers with the specifications of M24 there is now current dedicated team in R&D and in Japan is predominantly focusing on testing alternative raw materials that can supply 24M technology in addition to then that 24M prequalified themselves. Further on, as we have announced previously, focus on decarbonization clearly also drives towards localized raw material processing in the Nordic region in particular, where renewable energy is relatively low cost and also high security of supply. A prime project is now to develop the process plant for the LFP cathode material based on license agreement with Aleees that we plan to localize in the Nordic region. Our project team is planning for an FID for the cathode plant in order to meet production volumes required for the Giga Arctic ramp up. So to sum up, operationally we are continuing to commit to deliver, and deliver as committed. I will now hand the word over to Tom who will share some strategy and concluding remarks before we go into the Q&A session. Over to you, Tom.
Tom Einar Jensen: Thank you, Jan Arve and thank you Oscar for those comforting run throughs of the financial and operational status of the company. It's clearly easier for me to lead this company with such excellent support from both of you and the teams surrounding you. But as you can see, we are moving fast forward on multiple fronts. We have secured ultra-low cost energy, and we're advancing strongly towards the localized supply chain. Having a localized supply chain with renewable energy playing into that processing will not only both reduce cost significantly compared to others, but it will also enable us to advance faster towards our ultimate ambition of zero CO2 emissions on a life cycle basis. Our initial ambition is to have that reduction by 80% in the very short order and we are already well on track to achieve that through the initiatives that Jan Arve mentioned. While this is important from a climate mitigating perspective, it is also supporting an even greener bottom line, as reaching our ambitions, in the medium term could generate as depicted by this slide, gross value of more than $150 million per year for Giga Arctic alone. FREYR will not survive as a company unless we are the absolute left hand side of the cost curve and being the cleanest battery solutions provider globally supports that ambition much more than most people realize. So to sum up, we are on track and we keep pushing relentlessly ahead to deliver the cleanest battery solutions to an ever increasing customer base across all market verticals. The traction on the customer side integrated with our financing efforts enable us to move forward in our staged FID process towards startup production from Giga Arctic in the first half of 2024 with new volumes coming out of additional facilities in the U.S. and Finland subsequently thereafter. We are accelerating our plans in the U.S., and we are increasing our ambition levels as our customers require more volumes than previously thought and they also value geographically diversified supply. We are emerging as an industrialization partner of choice for established players in the battery space from Asia to the U.S. This is true for technology providers, raw material providers, equipment providers, customers, investors, governments, alike. You should expect material news from FREYR in the weeks and months to come, from all of these different arrangements as we convert our initial offtake agreements to firm value accretive contracts and add technology and geographical diversification to the mix. We would not have been here without our investors. So I have to on behalf of the Board and everyone in FREYR to thank all of you very much for your support to date. We will keep growing and the FREYR team can promise you that we will do our utmost, that the journey ahead will be a deeply rewarding one. It is obviously more pleasant to talk to you today, than it was on the 11th of May and the underlying market conditions for battery players like us is increasing day-by-day. Our promise on delivery is based on producing the cleanest, safest and most cost competitive battery solutions in the world. We are on track to deliver on that ambition. And with that, that I thank you for your attention, and hand it over to Jeff to guide us through the Q&A .Jeff, over to you.
Jeffrey Spittel: Thank you, Tom. Operator, we're ready to open up the lines for questions.
Operator: Thank you. So our first question comes from the line of Nellie of Clarksons Securities. Your line is now open. Please go ahead.
Unidentified Analyst: Thank you. Nellie here from Clarksons. Guys, congratulations on wrapping up the second quarter. I thought I would start with some questions regarding your expansion ambitions. So you mentioned doubling ambitions towards 2030. Do you have any outline or do you have any ideas when that would be, would it be predominately in Norway, Scandinavia or you aiming more towards your, if you are developing additional Gigafactories?
Tom Einar Jensen: Yes, thank you Clarksons for that question. So we are targeting as alluded to 200 gigawatt hours of installed capacity by 2030, 100 gigawatt hours installed by 2028 and 50 gigawatt hours installed by 2025. Needless to say, the first facility we will build is the Giga Arctic facility already on the way. This will be LFP production in the Nordic or Nordics. Most likely the second facility we will build will be in the U.S., which will be probably a larger facility than Giga Arctic. Probably also to a large extent LFP capacity for the storage markets as we are seeing increasing interest from commercial vehicle and electrical vehicle producers as well. Generally speaking, you should sort of have as a rule of thumb some idea, that the 200 gigawatt hours installed capacity by 2030, will be roughly half in Europe and half in the United States, that's least a working hypothesis right now. And it will probably be half LFP and half higher energy density materials. This is something that is extremely dynamic and constantly sort of changing, and to sort of support that notion as mentioned previously, we have an extremely flexible technology in the 24M platform. So if capital chemistries change and the sort of main interest in capital moves from one particular solution to another, we are able to adapt our production system to cater for that. Generally speaking, 50-50, U.S., Europe and 50-50 NMC LFP by 2030 is a rule of thumb that you can have in the back of your head, and that as we're progressing towards that, we will give you more specific updates as and when we contract out the different production lines that we are developing.
Unidentified Analyst: Great, thanks for that, Tom and just to follow up on U.S. factory, I saw that you outlined approximately $61 million per gigawatt hour for production in Norway. How do you see that potentially increasing with building factories in the U.S.?
Tom Einar Jensen: So we think that we will implement eight production lines, so called generation three equipment in the U.S., if all of that is LFP and it's the generation three equivalent that we're having in Giga Arctic, you could expect the capacity of Giga America, a working title for our facility in the U.S. to be around 35 gigawatt hours. But that might sort of change a little bit, but directionally I think that's what we're aiming for in Giga America the way we'll see it now. But bear in mind, this is reasonably early days relative to Giga Arctic. So there might be some changes in that, but directionally, this is what we are looking at the moment.
Unidentified Analyst: Great. And just the last follow up on that, do you still expect, or I know it's early, but you still expect CapEx per gigawatt hour to be the same, in the same range as well to be in the Nordics in the states or would it reasonable to assume an increase for the Gigafactories?
Tom Einar Jensen: Well, given that we will have the same number of production lines and that we have an optimized and idealized sort of solution for it, if anything, we expect the CapEx intensity for that facility to go down. But we will come back with updated estimates on that when we're a little bit wiser somewhat later this quarter.
Unidentified Analyst: All right. Okay, thanks Tom.
Operator: Thank you. Our next question comes from the line of Philipp Konig of Goldman Sachs. Your line is now open. Please go ahead.
Philipp Konig: Yes, thank you very much for the presentation. My first question is also coming back to the U.S., and the potential benefits from the Inflation Act. You had a very nice slide where you pointed out the different potential incentives across the value chain. Can you maybe just point out how has that changed in terms of your strategy for the U.S.? Where do you see the largest opportunity? Does it also make a difference at all thinking about your value chain on localizing more of the production in the U.S.? Then my second question is also on localization, but more in Europe. I'm just wondering on the LFP cathode plant, is there may be a bit more detail on sort of the timeline and how would it work? Would you license the technology from Aleees, or would you build the cathode plant together with them and then potentially also offer to customers outside of yourself? And lastly, I just wanted to get your thoughts around recycling. I know when you announced the sanctioning of the first Gigafactory there was also that you saw some potential investment on the recycling side. What is your strategy there? We very keen to hear to your thoughts on that matter. Thank you.
Tom Einar Jensen: Well, thank you, Goldman for very important question. So when comes to the U.S. and the Inflation Reduction Act, clearly the incentive package now sanctioned yesterday by Senate is very strong and clearly increases the impetus, not only for battery cell manufacturing capacity to be established in the U.S, but for the entire value chain. So if anything, this just accelerates and increases our desire to build facilities in the U.S., including localization of upstream materials and for that matter downstream development based on our battery cell manufacturing footprints. The most capital intensive part of this value chain, as you know, is the battery cell manufacturing facility. So therefore for us, that's kind of a centerpiece if you like for our development. And then we will add the upstream and downstream pieces around this. Again in a partnership based way, focusing again on the speed scale and sustainability mantra and renewable energy is going to be core for us when we locate ourselves in the U.S. and our site selection process that we are well advanced in, moving from more than 150 location across 25 states to now less than five and let's call it final contenders, all sort of show very promising features in terms of not only these more general incentives on a federal level, but also state by state very strong sort of packages to support and accelerate the development in the U.S. So expect us to move forcefully forward together with our partner Koch Strategic Platforms, who've been very active in the process of our site selection to date. And you should expect a of new on our development in the U.S. in the weeks and months to come. When it comes to Aleees and the cathode, the plants in Norway and or in the Nordic region, you should expect us to develop and build capacity that will at least feed Giga Arctic with cathode material on an LFP basis. This will be a licensing arrangement most likely, and we will build it either in either/or in Norway and Finland. That's the way it looks now. We are quite advanced in the planning for this and timing for it will be so that we can gradually start to feed Giga Arctic with localized material using also renewable energy to produce it. This is a big part of reducing the cost, not only eliminating the logistical cost of transporting process active material, but also using lower cost, renewable energy in the processing of it. That matters a lot. So it's a licensing arrangement and you will probably also see us building more capacity than we need ourselves, either for additional facilities in the FREYR universe over time, and or for potentially our sister and brother licensees in the 24M family will also be needing decarbonized the low cost LFP material. So on the third question on recycling, we are of course as any other battery player, very active and preoccupied with how we engage in the recycling arena. We're talking to and investigating the best option for us in this regard. We fundamentally believe that recycling of black mass and active materials for production of future battery cells will be important, but it's probably some years into the future until we can rely on reasonably steady and growing, let's say, flow of materials coming from recycled solutions. So therefore, we are hurrying slowly in this regard. We're talking to all the established payers and the leading newcomers in this space, and you should be expecting us to make judgment calls on that in the not so distant future. Clearly recycling is core. The first large scale battery recycling facility in the world has been built or is in commissioning, I would say, in Southern parts of Norway and therefore Norway is here also at the forefront of the battery industry and we will benefit of course from our front row seats kind of observation to this. But again, our choice of partner in this regard is something that we will come back to in due course.
Philipp Konig: Thank you very much.
Operator: Thank you. Our next question comes from the line of Maheep Mandloi of Credit Suisse. Your line is now open. Please go ahead.
Maheep Mandloi: Hey, thanks for taking the questions. Maheep Mandloi from Credit Suisse. First one just on the timeline like on the FID, we saw the good news the last month on the debt financing or at least the initial docs on it, when should we expect an update on that end or is the trigger basically coming from customer arrangement or something else which could act as a precusor for that? Thanks.
Oscar Brown: Yes, thanks for that. Hi itâs Oscar. Iâll tackle that one. So you saw the press release, the Board approved increased commitments of $70 million in the third quarter, so we could buy some long lead time items and stay on schedule for our first half 2024, start up production for Giga Arctic. So maybe I'll also give some guidance to cash uses during the quarter though will probably be about $60 million to $70 million. We won't spend all of that commitment necessarily in the third quarter, and that's before changes in working capital. So, really as the driver of sort of the next release, the next release, the way we're looking at this is just continued progress on the commercial side, on financing, on joint ventures and sort of all the things that Tom's been referring to. So we're continued to be on schedule, releasing just enough activity to stay on that schedule. We'll make the further commitments down the road when we're sort of ready to do so.
Maheep Mandloi: Got you. Thatâs â just figure, precursor to FID, that's really good, thanks. And then just on the IRA, I mean there's a lot of good information, thanks, we appreciate that. If you can comment like, talk about pricing here, I think some of your contracts, I donât know if you discussed some arrangements, even for the Giga Arctic for U.S. site, just this $30 per kilowatt hour subsidy or production incentive, does that change these discussions with your customers in terms of like, what that pricing could be for the deliveries or how do you think the $30 is going to impact pricing going forward for you at least for the U.S. market?
Jan ArveHaugan: Well, so great question, and of course this was passed in Senate yesterday, right? So the Bill has passed Congress, and itâs reasonably nascent, right? So it hasn't really filtered into our customer discussions in a material way yet. So what I can say of course is with the structure that has been envisaged, the interest in an appetite for the entire battery value chain acceleration organization in the U.S. is clearly now in a different level than what it was a couple weeks ago. And so this will of course enable us to provide improved overall economics across the entire value chain in the U.S. So what this will clearly sort of unlock is an acceleration of the U.S. battery industry. And having an already structured and modularized step up for rapidly rolling out next generation world leading battery solutions like we have now developed and are building in Norway, will give us an edge with all of our customers, many of which also will require volumes to be produced in the U.S. So this is very good news for us. Exactly how the delineation of these incentives will be across the different stakeholders in the value chain will play itself out in different ways and forms I'm sure. But the good news is that for a cell producer, this will allow for a massive uptick in value creation in the U.S. and building more facilities, creating more jobs, and sort of developing more battery-driven energy transition activities, in the U.S., which we by the way, have been very clear on all along. And when the U.S. wakes up to this energy transition in a material way, which this bill clearly sort of is a testament to, a lot of momentum will happen in the U.S. and we are ready to engage and are already on the ground finalizing where we're going to build the first facilities.
Maheep Mandloi: Got you and I appreciate that. And just last one from me, there are some facts and the bill, which requires some of the battery materials for the EVs at least to come from countries where U.S. has treated agreements from, how does that, or does that benefit the Norwegian, the Gigafactory operations? Does it make it easier for you to kind like shift those things over here to the U.S.?
Oscar Brown: Itâs does, this is Oscar, yes it does, it's helpful obviously. And I think look it is all, the competitiveness of all that sort of battery manufacturers and Western located battery manufacturing facilities. So anything Aleees there's a whole list of items that are very favorable in this bill. We could go on and on. In addition there's some great outcomes for our developer customers here as well. So we expect ESS demand to accelerate further based on this, giving some things like the investment tax credit and other related items, that just makes it easier for developers who are customers for ESS as well. So it's great across the board.
Maheep Mandloi: Great. And thanks a lot for taking the questions and look forward to hearing more on the U.S. factory and Giga Arctic. Thank you.
Oscar Brown: Thanks, Maheep.
Operator: Thank you. Our final question comes from the line of Greg Lewis of BTIG. Your line is now open. Please go ahead.
Greg Lewis: Hey, thank you and good afternoon and I guess good morning, everybody. Tom, I was just looking for a clarification around, you kind of alluded to, customer interest and demand, largely being, I don't know if you quite said sold out, but it's clearly selling off. When we think about that, is that kind of, is that just for the Arctic, Gigafactory or at this point in time we're starting to kind of fill up, I guess in the U.S., I wouldn't think so, but I just want to understand it for how those discussions are progressing?
Tom Einar Jensen: Greg, thank you for that question and good morning to you. So the way we're thinking about this is, from a macro perspective we see for the next decade a fundamental market short, and we think that market short is widening. As mentioned in one of the slides, we see demand picking up quite significantly across the board for all market verticals. And we think that that demand, the increase will just keep increasing, given the underlying driver of climate change needing really to sort of speed up the energy transition. At the same time, we see that there's a lot of new entrants in this space claiming to be building, and have plans to build Gigafactories. We don't think all of these will be successful. So therefore when the risk adjusted base to sort of look at supply, we see that there's a very strong market short on the horizon, now and it's already a market short in our dialogues with many of our customers. They are getting orders canceled or they're getting double digit price increases twice in two months and so on. And another sort of thing we're observing is that the EV market is crowding out the ESS market. So having a tailor made solution ESS is actually very welcome in the market today and therefore there is a lot of interest, even after our initial sort of year worth of sort of really marketing our solutions to them. So the way we're thinking about this with that backup, Greg is we are seeking to allocate about 50% of the volume in any given facility to sort of five-year long-term contracts. And the reason why we're doing that is to ensure that we have a strong sort of bankable, cash flow coming in from a credit worthy partner. And then we're reserving 60% of the remaining volume for merchant sales, because we do believe that having spare capacity going into this market short environment is probably the most sensible commercial play as a battery sales producer at the same time, having this ability to sufficient amounts of cash flow, so that you can get favorable project financing in the making. And all of that is of course intricate processes that we're in at the moment. So as we've previously indicated, we are well north of 100 gigawatt hours in initial offtake agreements. Giga Arctic will probably produce in the order of 100 gigawatt hours by 2030 when we sort of take ramp up and yield and up time, et cetera into consideration. So what that means is that we already can visualize or think about having half of the offtake volumes that we have contracted so far dedicated to Giga Arctic and the remainder in a way dedicated to the next facility. So I hope that sort of gives you a flavor of where we are thinking about this. This is obviously not something that is carved in stone to 100%. We might go a little bit higher on offtake commitments in one facility and maybe a little bit lower in another, as we're sort of progressing on our project financing efforts. But by and large, I would say that we have sufficient coverage for Giga Arctic, and we're starting to have sufficient coverage for the next facility. So hopefully that gives you some color as to how we're thinking about this and why we are ready to come out with reasonably bold and bullish statements around Giga America at this time.
Greg Lewis: No, that was super helpful Tom. Thank you for that. And then, I did want to follow up on the, I guess, they call it the Inflation Reduction Act. Clearly that's very granular and I get this is more of just a catch up to what's already been happening in Europe. Is there any way to kind of -- I don't know, try to quantify what, how this levels the playing field for battery cell pack production in the U.S. versus Europe? I mean, it seems like based on what we're tracking Europe is still much, much more attractive incentives, any way to kind of say, or yes, I guess kind of how this stacks up versus what's already in various pockets of Europe?
Tom Einar Jensen: So, Greg, I think it's a little bit too early for us to sort of have a very strong view as to how much more or less or equally attractive this is relative to different consensus schemes in Europe. As you know, there is something called IPCEI in Europe, which is International Projects of Common European Interest, which is this broad European, it's called incentive program to stimulate among other things the battery production. This is also something that Norway is going to be part of, but then of course you have favorable government guarantees. You have direct lending programs; you have ECAs backing up different solutions. You have grants, both from the European Union and from local governments all within the European competitive sort of framework. So it's a little bit too early to say whether the Inflation Reduction Act is materially better or at par with what we see in Europe in general and in Norway in particular. But what I can say is that when we actually saw the bill come out and we saw the details of it, we were very encouraged. So this is obviously the driving force behind us now accelerating our plans and efforts in the U.S. And as we move forward and we start engaging on specific programs and specific discussions, then we'll be more intelligent in terms of how to inform our investors about how we view this. But clearly this is positive. Clearly this increased interest in capacity buildouts in the U.S., and we will be at the forefront of that for sure.
Greg Lewis: Okay, perfect. All right thank you for the time everybody. Have a great rest of the day.
Tom Einar Jensen: Thanks, Greg.
Operator: Thank you. As there are no additional questions waiting at this time, I'd like to hand back over to the management team for closing remarks.
Jeffrey Spittel: All right, thank you, Candice and thank you everyone for your participation this morning and your interest in the company. We look forward to seeing everybody out on the road over the next several weeks and weâll catch up with you soon. This will conclude the call.
