Raj Talluri: Maybe I will add a little bit more to that. The fact that we’re able to sample and give a lot more batteries now is really helping us get much better feedback too, because now they’re running hundreds of — they have hundreds of batteries from us that they’re testing. So the feedback is just much, much more — much stronger. So it’s so important to be able to make these batteries now and sample customers.
Colin Rusch: Excellent. And then just looking at the ecosystem of equipment suppliers. As you start playing for lines two and four, can you talk about how much opportunity you’re seeing for CapEx reduction, optimization, second suppliers, things like that. So that there’s — your de-risking and shortening the timeframe on the ramp and install that equipment?
Raj Talluri: Yes. Let me ask Ajay to comment on that. He’s right here.
Ajay Marathe: Okay. So a very good question indeed. Actually, as we start our ramp, as we go into higher volume production, even here in Fab-1 in Q3, Q4, we have a lot of second sources lined up under qualification right now. But that’s just for the 180,000 batteries. But going forward for the Malaysia factory, we have yet big list of second, third sources, which we have lined up actually, which we will be qualifying going through a rigorous qualification process. And then for equipment, you mentioned equipment as well as. Equipment, what we are doing is, we are relying really on the semiconductor value chain, if you will rather than just a battery value chain again, bringing in that mindset, and we localize a lot of that in Malaysia, as we set up the high-volume operation there. So both are in works.
Operator: Our next question comes from Derek Soderberg from Cantor. Please go ahead.
Derek Soderberg: Raj wanted to start with you. Maybe this one’s for Ralph. But I’m curious whether or not you guys have funding now in place for the four production lines, with a more or less certain timeframe in place, does having that allow for certain customer orders or negotiations to move forward that otherwise wouldn’t have?
Raj Talluri: I mean, I think what actually has always been, in the path of customer orders has been getting enough samples for them to qualify, getting them to be able to test it and say, yes, it looks good in our product, and then getting feedback from them on the right sizes of the batteries, right, dimensions, if you will. And that’s really been what’s in the critical path. And again, that, as I mentioned, we have the agility line coming in November, this year, November, December, is when we will be able to sample them, then we get samples from our high-volume manufacturing line in April. And that will go through the process of qualification to our customers. And we expect those products to go to manufacture late ’24 and through ’25.
So in that sense, that’s really the timeline that we’ve laid out. This fundraise, and getting the capital is to, for us to make sure that we are ready, and we have the funding in place to meet that rather than accelerate anything else, the timeline will be the natural order of things.
Derek Soderberg: Got it. That’s helpful. And then as my follow up Steffen, you guys have put out a range of estimates for battery production up to four lines, you’ve got an agreement with your manufacturing partner, wondering if you can update us on how we should think about the longer-term gross margin outlook.
Steffen Pietzke: So, Derek, thanks for the question. We really don’t think it has changed on long range outlook, we still think the 50% high profitable business, that is what we are aiming for.
Raj Talluri: Yes. Just to add a little bit more color to that. I mentioned this last time, I think it’s worth mentioning it again, because I get this question quite often and I want to add a little color. The cost of the battery, 60% to 70% is actually in the materials, I think that’s important to understand. And as Ajay mentioned, as we get multi sourcing in place, as we get to scale, we are making millions of batteries, we see that costs coming down. The cost of the constraint we add on top of that is actually a small piece of it. But with local manufacturing capability in Malaysia and Sohan will bring that cost down to. And another very important thing I think for everyone to see, as I mentioned, my talk is that the factories we’re building will last for quite long time.
Because we can amortize those over millions of batteries because it is like the backend and test and I’ve seen people run the backend as test machines for 10 years even. So it’s important to understand that this will be a profitable business. And as Steffen said, we’re not changing our outlook on that. It’s just really a question of getting to scale.
Operator: Our next question comes from Gabe Daoud from Cowen. Please go ahead.
Gabe Daoud: Thanks for all the remarks so far, maybe just going back to the mobile phone and laptop batteries. You noted in the shareholder letter, the focus or go-to-market strategy for majority of this year and next year is on the wearable side and the IoT market. So just curious when could we expect first revenue being generated by mobile phone and laptop batteries? And could you just remind us where we are on the tech roadmap in terms of cycle life, I think maybe the larger phone and laptop batteries had higher cycle life requirements.
Raj Talluri: Yes. So I think the most important thing to remember here is the timeline, which I laid out, which is, we will get samples end of this year from our agility line in the right form factor, because the current batteries we make don’t fit into laptops, or phones in form factor, the small ones, and the big ones that we make, they really fit in the IoT space. As we make the batteries that are more specific to phones and laptops, we will get that capability by end of this year, and sampling again in April next year, and then starts the process for our customers to actually start validating them in their own product lines. And in their own phones and laptops, and so on, that will take us through — that will be end of next year.
And ’25 is when we expect to see revenue from those kind of high-volume applications, because that’s the time it takes to actually make these batteries in the right form and get the validation and get the qualification from our customers. Now we will continue to improve energy density, we will continue to improve our cycle life and that will naturally intersect with the latest technology we have in ’25, when they get to production.
Gabe Daoud: Thanks, Raj. That’s helpful. Okay. And then, if we could just maybe, or just I want to say, makes sure I’m thinking about the timing correctly. So Gen two auto line begins to arrive in Malaysia in November this year. So I guess, with factory acceptance, taking maybe a quarter or twos started production is 2Q ’24. And then still expecting four lines in Fab 2 by 4Q ’24 is that how we should be thinking about the ramp.
Raj Talluri: I know the way I mentioned that is, we ordered one line. And that’s the line that will be there. As you said, actually the first two pieces, we ordered one line but we ordered one part of that line twice. So what is called the agility line, which will come here to Fremont in November, December. And the same stuff will go to Malaysia too. The agility line here will help us sample our customers with custom sized batteries. Meanwhile, the Malaysia build out happens in parallelly. And the Malaysia build out happens in such a way that April next year, we’ll be able to get samples to the Malaysia line. Now we only committed on building one line through ’24. We have the ability to build more, now that we have the CapEx stuff sorted out.
But we will pull the trigger on those as and when we see the right customer demand come in. And the most important thing in running a manufacturing company is to match the supply and the demand. And as the customer qualifications progress, we’ll have better and better visibility into when to build that. Now the one thing that Ajay and team have done is to make sure that the facility that we are doing in Malaysia, with YBS has the ability to host all four lines and has the facilitation run them. So we have set-up. And we also talked to our suppliers that, hey, we will probably need much more than one line and so please be ready for it. But we’re not making any commitments and when exactly, we’ll pull the trigger on that.
