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

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. [Operator Instructions]

Good morning, good afternoon and good evening. Welcome to FREYR Battery’s 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 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.

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.…

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…

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,…

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 [indiscernible] 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.

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…

Thank you, Tom. Operator, we're ready to open up the lines for questions.

Thank you. [Operator Instructions] So our first question comes from the line of Nellie [indiscernible] of Clarksons Securities. Your line is now open. Please go ahead.

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?

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.

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.?

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.

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?

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.

All right. Okay, thanks Tom.

Thank you. Our next question comes from the line of Philipp Konig of Goldman Sachs. Your line is now open. Please go ahead.

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.

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…

Thank you very much.

Thank you. Our next question comes from the line of Maheep Mandloi of Credit Suisse. Your line is now open. Please go ahead.

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.

Yes, thanks for that. Hi it’s Oscar. I’ll 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.

Got you. That’s – 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 don’t 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?

Well, so great question, and of course this was passed in Senate yesterday, right? So the Bill has passed Congress, and it’s 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.

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.?

It’s 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 [indiscernible] 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.

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.

Thanks, Maheep.

Thank you. [Operator Instructions] Our final question comes from the line of Greg Lewis of BTIG. Your line is now open. Please go ahead.

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?

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…

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?

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.

Okay, perfect. All right thank you for the time everybody. Have a great rest of the day.

Thanks, Greg.

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.

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 we’ll catch up with you soon. This will conclude the call.