T1 Energy Inc (TE) Q3 2022 Earnings Report, Transcript and Summary

Hello, everyone and thank you for joining the FREYR Battery Third Quarter 2022 Earnings Conference Call. My name is Daisy and I will be coordinating your call today. [Operator Instructions] I would now like to hand the call over to your host, Jeff Spittel, Vice President of Investor Relations to begin. So Jeff, please go ahead.

Good morning, good afternoon and good evening. Welcome to FREYR Battery’s third 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 F-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 will turn the call over to Tom.

Thank you, Jeff, and good morning, good evening and good afternoon, everyone. Pleasure of course, as always, to be speaking to you in this, our sixth earnings call since we went public on the New York Stock Exchange for our third quarter earnings report for 2022. During today, we will go through some refreshments, so to speak, on what we’ve been doing to date. We’re going to refresh you on what we’ve done in terms of selecting technology. We’ll give you an update on where we are, talk about the market dynamics, which is accelerating in front of our eyes. I had the pleasure, of course, of announcing our Giga America ambition to the world a couple of days ago. I just revived back from Atlanta. We’ll talk about that. We’ll talk about our strategic partnerships, and I will take you through updates on the operational side. Oscar will take you through updates on the financial side, I’ll sum up with strategic priorities before we turn to Q&A. So FREYR is a company that went public on the New York Stock Exchange on the eighth of July last year. We built our company around 3 core tenets of speed, scale and sustainability. And everything we do is linked to these 3 things. And the last quarter has fundamentally supported that ambition as we have demonstrated through moving forward at pace both on the commercial side, on the operational side and on the strategic side. We offer differentiated exposure to the secular growth trends in the battery market, and we are an increasingly selected partner of choice in providing clean battery solutions. We are on track to becoming a global leader in this space. We have captured a large part of the nascent, but rapidly growing ESS market, and we’re now seeing increased interest and momentum building in the commercial vehicle space as well as the electric vehicle space. We are a partnership-based organization, and we value our partnerships and we developed ourselves in combination with and – in learning from our partners that we have now from Japan in the East all the way to the U.S. in the West. So as mentioned, we started out in basically 2018, when the idea was formed, as I mentioned to many of you before, we were inspired by Northvolt and impressed by their development. But as good Norwegians, we tend to think that we can do it a little bit better than Swed. Fast forward to July 8 last year, when we went public on the New York Stock Exchange, obviously, a formative point in FREYR’s history. Since then, a broad variety of important partnerships have been established, both for joint venture development in the U.S., for downstream opportunities with Nidec, in module pack and DC block, basically containerized ESS solutions, important supply chain partnerships with ITOCHU and the Aleees on cattle manufacturing. And of course, the soon-to-be completed Customer Qualification Plant are sanctioning of developing of Giga Arctic and our announcement of Giga America, all of which speak to our 3 core tenets in our strategy of speed, scale and sustainability, moving towards becoming a global champion at the global scale, targeting more than 200 gigawatt hours of capacity installed by 2030. Just want to take a moment to remind ourselves about our technology strategy. So FREYR took 18 months in our technology selection process before we landed on our first technology partner, 24M Technologies, MIT spin-off out of Boston in the U.S. And we were looking for three things when we were selecting technology. We will be looking for a technology that was commercially introduced because we wanted to get rapidly to the market with products in this exponentially growing demand for batteries in an increasingly market short environment. We wanted something that offers a step change in performance and cost. Because ultimately, this is a numbers game, and we need to be on the left-hand side of the cost curve to basically be able to compete with the Asian business models in general and the Chinese business model in particular. 24M Technologies offer a dramatic reduction in footprint of the facility, dramatic reduction in CapEx, strong reduction in energy consumption and much more production per employee and differentiates basically the ones who are able to take this to get a gigawatt hour scale. And today, this is the first company to take this technology to gigawatt hour scale, and we’re on track in pushing towards becoming that differentiated clean battery solution partner of choice. But equally important, our third criteria was to be able to improve this technology further over time. And we’re very happy to have established very deep iterative discussions and partnerships with the other licensees and the 24M family to basically ensure that we can continue to push the boundaries of what is possible to achieve within the existing raw material paradigm, core lithium-ion batteries, but staying within a disruptive technology process, which we’re now advancing further as we speak. So we are hard at work in ensuring that we can meet the industrial and financial milestones that we need to get to that gigawatt hour level scale. We are acutely aware of the integrated nature of building and financing and operating multiple facilities over time. And I am proud to announce that we are making good progress on all of our core verticals. We are intensifying and broadening our financing efforts to support this parallel development that we’re now on with Giga Arctic and Giga America. The good news is that we already have detailed blueprint established for Giga Arctic, which will be reasonably easy for us to replicate in specific detailed engineering and blueprint when we now move into that detailed engineering phase for Giga America. This will allow us to reap the learnings from Giga Arctic into our next-generation development in Georgia, and we’re really looking forward to leveraging our learnings from Norway and exporting them to our new partners in Georgia. The Giga Arctic project financing process is in its second stage, and Oscar will come back to that. And we are targeting additional credit approvals for that in first quarter 2023. The Customer Qualification Plant is on track to produce its first cell in the next quarter in 2023, and that will enable us to unlock competitive project financing and accelerate further customer acceptance tests, et cetera, as we are seeing today. There is deep increasing interest from strategic and industrial partners to enable what we label accelerated capital formation, and Oscar will take you through a deeper status on that in his front through. We have also tested 24M cells with one of the leading agencies in Europe linked to our customers. And we’re very happy to see that we are exhibiting top quartile energy density and very strong safety performance in ourselves. So seeing the performance of 24M cells relative to the energy storage market is something that obviously is generating a lot of traction with our customers, and we’re really looking forward to documenting that we can produce these cells also in the Customer Qualification Plant. We are continuing to accelerate on the commercial front with more conditional offtake agreements in process of being converted to firm offtake agreements. From a project finance point of view, we’re targeting 60% or more firm offtake capacity through 2032 to basically unlock as bankable project financing solutions as possible. Furthermore, I am really happy to say that we are seeing now an acceleration in the interest for our solutions also from the commercial mobility sector as well as the electric vehicle sector. We are in advanced discussions with a broad variety of stakeholders across the entire mobility and EV spectrum, and we will be continuing to mature long-term strategic partnerships in this regard with some of the leading firms on the planet. Obviously, all of this will not happen unless we have a very strong focus on securing relevant materials, and we are making good progress in this regard as well. So we have secured most of the materials we need for the immediate future, both from a Customer Qualification Plant point of view and also from a Giga Arctic point of view. We have also announced efforts to established localized and the decarbonized supplier, for instance, cattle materials into our Giga facilities, and our licensing partnership with Aleees, which I will come back to in a second, is a good example in this regard, which will allow us to drive down costs, maintain our position on the left-hand side of the cost curve, and also ensure that we can drive down the carbon footprint of the facilities that we built. Let me just take a moment to remind everyone of the exponential nature of the growth in the ESS segment. We have always been of the opinion that the decarbonization of society is in large part driven by the decarbonization of the transportation sector, but also the decarbonization of the energy sector. And it’s evident that the batteries that go into electric vehicles eliminate the point of combustion from the tail pipe. But if you charge these batteries with nonrenewable energy, and if you build these batteries also with nonrenewable energy, you will not enable the decarbonization required. So therefore, we have always been of the opinion that the market opportunity in the Energy Storage segment is as large as it is in the Electric Vehicle segment. And it’s very good to see that more and more stakeholders are changing and revising their estimates in the right direction. The only thing I know about these predictions is that they are most likely wrong. But the other thing I know is that they continue to be realized upwards. So we are of the opinion that the ESS opportunity is much larger than most people think. And this is also in part one of the reasons why we think the 24M Technologies production platform is particularly suitable for these applications. These represent very large and thick electrodes that we can apply into containerized solutions for storing sunlight and wind, and provide stress relief to grids as they move to more and more intermittent power supply when they move away from baseload coal and baseload natural gas as their main sources of energy. Therefore, this movement is fundamentally supporting FREYR’s accelerated development, and our Giga Arctic and Giga America announcement should be seen very much in this regard. We will, however, also be producing batteries for commercial vehicles and electric vehicle applications, most likely from both facilities, but the flexibility that our technology platform provides us with is also a differentiating feature that we’re very happy and proud to take 2-gigawatt hour scale. Let me then briefly mention and many of you probably witnessed our announcement late last week, when we announced the development of Giga America. We are now committing to developing clean next-generation batteries in the U.S. at gigawatt hour scale. And it was a pleasure for me to take part with the great people of Coweta County alongside representatives from the State of Georgia in announcing our Giga America plans. Our initial phase development here will be 34 gigawatt hours, roughly costing the same as Giga Arctic. We have received strong financial support from the County and the State of Georgia. A core pillar of course, alongside talent, the logistics and infrastructure as our key features in selecting this site. We did a very rigorous selection process looking at more than 130 sites across 25 states, and we landed in Coweta County in Georgia. And we have 368 acres of prime industrial acreage, which we now aim to move into development phase of as we move into detailed engineering over the next couple of weeks and months. So this industrial acreage is ideal for not only multiple phases of battery cell manufacturing projects, but we could also add both upstream and downstream facilities into the mix. We here have a site, which is already 15x larger than the site we have in Norway. So we have an opportunity to really expand as and when we see the commercial momentum growing in the U.S. We will, over time, invest more than $2.6 billion on this facility in line with the agreement we have with the state and local municipalities, and employ over 700 people in the process. We will be leveraging the American technology based again on the 24M technology platform, which, again, is a very simplified process that enables us to really sort of differentiate ourselves both from an ESS point of view, but also, as I mentioned, commercial vehicles and electric vehicle applications. And the final thing I’d like to say on this one is, it is very important for us to be a geographically diversified provider of clean battery solutions. This is something that our customers really value. They see regional security of supply as a core part of large offtake agreements. And this is something that you should expect more and more – customers to be focused on in the coming weeks and months as we are firming up and converting many of our offtake agreements to long-term sales agreements. We have also, in the quarter, forged new strategic partnerships. And I’d like to mention two of them. The one we did with Aleees, the largest producer and developer of LFP technology outside of Mainland China. And we are now evaluating how we are going to establish our own cattle manufacturing facilities in Northern Europe and Scandinavia in particular. And we’re also looking at how we can leverage this worldwide license that we have for producing LFP capital material to our facilities, both in Norway and in the United States. This, again, fundamentally secures the core cost component, but also the core carbon content component in the raw materials we use when we produce battery cells, and having a world-leading technology like the one of Aleees secured through a very competitive licensing agreement is something that will enable us to stay as mentioned on the left-hand side of both the cost curve and the carbon curve over time. Equally important for us and of course, with deep pride is that we have established a broader supply chain partnership with ITOCHU. ITOCHU is one of the leading trading houses in Japan also an investor and core supporter of the 24M technology, and they will serve as a direct material supplier for us in our procurement and supply chain operations. We obviously intend to leverage ITOCHU’s broad global network and expertise across the entire spectrum of securing transporting and leveraging world-leading materials for our battery cell ambitions. With that, I’m going to hand it over to Jan Arve, who’s going to take you through the operational updates from the Customer Qualification Plant in Giga Arctic. Jan Arve?

Thanks a lot, Tom and hello to everybody. As you can see now on Slide #12, we are ready to give you the update from the Customer Qualification Plant. But first of all, I am glad to inform you that we have yet another quarter without any reported serious safety incidents, and I will come back a little bit to that. A couple of minor incidents has been reported. But the current workforce at the construction site in Norway is now approximately 100 persons at the Customer Qualification Plant and close to 50 at the construction site for Giga Arctic. As the work hours is growing and more complex installations and work is elevated above ground, safe job analysis and multiple disciplined coordination is rightly important in order to have a safe and secure workplace. As we noted in our previous earnings calls, we are progressing according to the schedule. But of course, we are not immune to the challenges, both when it comes to logistics, COVID-19 lockdowns and scarcity of semiconductors. At the same time, this is actually what we are planning for. And this is – it’s the way we solve these problems that shows the way we are securing delivery, and identifying workarounds in order to mitigate delays and cost consequences. Therefore, I am very glad to inform that the first important milestone was met last week when we, at the site in Mo i Rana, managed to have the site acceptance test for the milling machine, which is part of the upstream powder handling and this system is delivered by Nippon Co [ph] from Japan. As you saw on the third page of today’s presentation, there is a team from South Korea from Hana Tech, which is now performing the installation and mechanical completion of the downstream section of the CQP. As we speak, most of the machines have met the key milestones of factory acceptance test at the manufacturers’ premises, and are in transport to the plant in Mo. The casting and unit cell assembly delivered by Mpac Lambert is the supply that is on the critical path for the FREYR Battery’s next year. We are mobilizing – mobilized with an integrated team at the manufacturer’s site in plant caster, UK. And the current program indicate that the transport to the plant in Mo will be done before year-end, and we are going to start the installation to the dry room early next year. We plan to test the upstream units to make our own cathode and anode flurry well in advance of the casting maturities. The operations team and – is integrated part of the mechanical completion and the commissioning group at the location in Mo. The key milestone for us is to be able to start the casting of the battery cells in the first quarter of 2023. And the first test containers are currently being installed at the test center adjacent to the CQP. Then I will go over to the Giga Arctic, on the next page. The pre-approved funding for the Giga Arctic construction program is now gradually coming out of the concrete foundations. Groundwork is according to schedule, and we have started the erection of the prefabricated steel structure for the first dry room of Giga Arctic. The building and infrastructure contractor are now well advanced increasing the quarter side of the building, this in order to call off the steel fabrication. In parallel with or this all-crucial production line equipment providers are collaborating in the design phase of the integrated production system; alignment of member information and interface coordination is now the main focus in this collaboration phase until enabling us to order the long lead items. Finally, we wanted to indicate the size of how big this Giga factory is. We have tried to put this factory into different locations, both in Oslo, in Rome and at lower Manhattan. And of course, this is a big factory. It’s 120,000 square meters of floor space, which is then managed into at Mo i Rana, approximately 77,000 square meters is to set this in a comparison to what Tom talked about when it comes to Giga America. Our SOP is planned for the summer of 2024, subject to closing of the project financing. And by this, I thank you for now, and I give the word over to Oscar for the financial update.

Great. Thank you, Jan Arve. Moving on now to the financial update slide of the earnings deck. I will review our financial results for the second quarter and the first 9 months of 2022, as well as provide an update on our financing initiatives. For the quarter ended September 30, 2022, FREYR reported a net loss of $93.8 million, or $0.80 per share compared with a net loss of $45.4 million for the same period last year, which was also the quarter that we listed on the New York Stock Exchange. For the 9 months ended September 30, 2022, the company reported a loss of $124 million, or $1.06 per share. It’s important to note that $70 million of the loss in the third quarter of 2022, and $46 million of the loss for the 9 months ended September 30, had to do with a non-cash warrant liability fair value adjustment for those periods. As highlighted in our last earnings call, this liability moves around period-to-period based upon, among other things, the company’s stock price at the end of each period, generally reporting gains when the stock declined as was the case in the second quarter, and losses when the stock rises as was the case in the third quarter. Our stock price was just under $7 per share at June 30, and just over $14 per share at September 30 of this year, which resulted in a significant third quarter non-cash adjustment. More importantly for today is our cash investment rate. We spent net cash of $70 million in the third quarter compared with $36 million in the second quarter, and $147 million for the first 9 months of the year, ending the third quarter with $419 million of cash and equivalents, and no debt on the balance sheet. 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 Giga Arctic as well as a small amount of initial spending on our U.S. Giga factory and other business development activities. As mentioned in the last quarter, the mix of CapEx and OpEx will continue to skew more towards CapEx in the future, particularly as the Giga Arctic project matures. Also, as mentioned last quarter, with FREYR’s Board approving incremental spending and commitments to continued progress in Giga Arctic, and as we move towards completion of the Customer Qualification Plant in Q1, we expect our expenditures to increase further in the fourth quarter as they did in the third quarter. In addition, last week, we completed the acquisition of the land for the Giga Arctic and America site that took control of our U.S. joint venture with Koch, giving us full flexibility to bring on additional strategic partners to the Giga America project. With respect to financing, we completed the first phase of the Giga Arctic project financing journey during the third quarter. This was the market standing process during which we went out to a group of commercial banks, multilateral development financial institutions, MDFI’s, and export credit agencies with a proposed $1.5 billion targeted debt package. We’re up to 70% gearing when including capital expenditures for battery cell manufacturer, financing costs during construction, funding of the debt service reserve account, working capital and pre-operating costs and other contingencies until the project achieves free cash flow. Results from the market sounding received in the third quarter were very encouraging, with indications of interest of up to $2.5 billion from more than a dozen lenders, plus the previously announced credit support from our key export credit agencies. Final sizing of the project debt for Giga Arctic will be a function of the results of the due diligence process, the balance of firm offtake agreements versus what we expect to be more profitable merchant sales, execution risk analysis and so on. We are now deep into the next phase, the due diligence stage of the Giga Arctic project financing process with the lenders currently utilizing five consultants to enhance their due diligence and evaluation as is typical for projects like this. This process will continue through November and into December as well as drafting and negotiations around a detailed term sheet that ultimately will be shared with an even broader lending group than in the market sounding phase. We are targeting conditional approvals from this group in the first quarter of 2023 and expect to address any remaining conditions precedent during the second quarter so we can close on the project financing. While negotiations and evaluations are contained with our core lending group and our consultants and advisors, we expect these conditions will revolve around the production of testable batteries for CQP that are accepted by our customers, allowing enforcement of our long-term sales agreements as well as giving the technical extrapolation of the CQP’s performance to Giga Arctic’s planned operational model. There will be other conditions, of course, but we expect the aforementioned to be the key ones from a timing-to-close perspective. I should further add that we continue to field and evaluate capital formation opportunities and interest from a wide range of existing and potential commercial, strategic and industrial partners as well as financial institutions. This interest appears to be driven by the widespread belief and the robust fundamentals behind the long-term expected growth of battery demand for both the ESS and the EV markets, and the incredible progress FREYR has made since its New York Stock Exchange listing 16 short months ago. We strive for partners who believe in FREYR’s mission and can grow along with us as we evaluate and take on projects like Giga Arctic, Giga America, the potential for upstream integration, our entrance into the mobility market and other opportunities. Certainly, our Giga America initiative and the passage of the U.S. Inflation Reduction Act have acted as recent catalyst for such discussions, and we see the ramp up early next year of the Customer Qualification Plant as we had another major commercial and financial catalyst. We are grateful for the ongoing support of all of our financial and industrial partners, including especially our shareholders, and our progress on all fronts 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 turn it back over to Tom for closing comments.

Thank you, Oscar, and thank you, Jan Arve. You both make my life a lot easier, of course. So thank you very much for your dedication to the company and for your 24/7 focus on making us into the global champion we aspire to be. Let me summarize by repeating our key priorities. First of all, we are hard at work in achieving the milestones required to complete our financing efforts, which really resolves around producing sample cells in the Customer Qualification Plant in the coming quarter. This will unlock the Giga Arctic project financing, and will also accelerate technology adoption, not only with our existing customers, but also with additional customers in the commercial vehicle and EV space. We are seeing broad interest that Oscar mentioned in participating in the capital formation journey for FREYR, and we’re evaluating several options to figure out how we can grow in both the European and the North American realm, so to speak, in terms of becoming a global champion for battery cell manufacturing. We are clearly focusing on convert not only expanding the conditional offtake agreement, but also converting the ones we have into long-term sales agreements, and we’re seeing deep interest across the board to both upside and accelerate that development linked to the development of the Customer Qualification Plant. We will be executing multiple projects in parallel; we have a team in place which have experience in both planning, executing and operating multiple highly complicated multibillion-dollar projects in the energy and energy-intensive industrial space, and therefore, we are confident that we will be able to both develop, finance and operate multiple facilities in parallel. Right now, our main focus is, of course, on the CQP and Giga Arctic. And Giga America will follow in it fields as we are evaluating and developing opportunities on the upstream side and the downstream side with our partner Nidec in particular, on module packs and with containerized solutions for energy storage applications. We are a partnership-based organization, and we will continuously forge new partnerships along strategic operational and financial access to enable our initial Giga development ambitions in Norway and America, but there are more opportunities that are being forced as we speak, but we will take one step at a time and move fast forward. So in short, we’re validating, we’re scaling our technology. We’re financing it. We’re executing it, and we’re delivering on our ambitions roughly in line with what we have communicated to the market so far. So with that, I want to thank all of our investors that have stayed with us on this journey. We are looking forward to the future and look forward to updating you on a running basis on improvements and progress as they emerge. Thank you very much for your attention. And with that, I turn it over to Jeff to take us through the Q&A. Jeff?

Thanks, Tom. We’re ready to open up the line for questions.

[Operator Instructions] Our first question today is from Philipp Koenig from Goldman Sachs. Philipp, your line is open. Please go ahead.

Yes. Hey, guys. Thanks so much for taking my questions. My first question is on – it’s just a bit on the progress on the financing. It seems like the CQP is a very big piece to unlock both the project financing, and also potentially some other things. What about converting some of those offtakes into sales agreement? Is that also part of the agreements you have with some potential lenders in terms of unlocking some of that financing? And is there any timeline you can give us on that as sort of end of Q1 or early Q2 sort of the timeline you’re targeting when you start financing – unlock the financing for Giga Arctic? And then beyond that project financing, you mentioned that you’re also looking at other strategic options. There was an article in the press yesterday about a potential private equity investor providing you with some financing efforts. So is that something that you’re looking at? And is that something that’s where we could expect maybe some news before the end of the year? And then my last question is just on the relationship with Koch in the U.S. Is it still a 50-50 partnership? Or are you taking more control there? And what does that mean sort of for your progress on Giga America? Thank you very much.

Thank you, Philipp. So this is Tom. Let me address some of these questions, and then I’ll turn it over to Oscar to chime in on some of the more financial aspects of it. So first of all, we don’t comment on rumors in the market, just to sort of be clear on that. But let me sort of pass some commentary to the customer side. So as we have explained previously, we fundamentally believe in a strong market short environment emerging especially in the ESS space, ESS producers are being crowded out to a large extent by the massive EV demand. This, of course, does hint to when we’re up and running that we can reserve a large part of our capacity for merchant sales. At the same time, we also need to document and demonstrate bankable cash flows against the project finance efforts that we’re undertaking. And therefore, we are now noodling around this 60% long-term offtake mark with our customers for Giga Arctic and subsequently for Giga America. We don’t see any material challenge in having sufficient demand to meet those objectives. Of course, our customers have specific requirements as any customer for any battery cell manufacturing facility would have in terms of us documenting and demonstrating that the products, we actually will shift to our customers to show the characteristics that we promise. The good news on that one is that our first legally binding contract with Nidec Corporation for 38 gigawatt hours that we announced earlier this year, which have options to upscale both in absolute volumes over the period up until 2030, but also extend it beyond to sort of match it more against the tenor and the project finance Those volumes, of course, are based upon the initial activities that we have embarked upon together with Nidec. One of those activities involve cell testing, and we’ve actually now gotten the first results of those cells. These are sample cells that were provided from 24M in Boston, multiple cells that show very great uniformity between them, I would say, first quartile, energy density and stellar safety performance. So all of this, of course, provides confidence that the technology itself is proven to be viable. Our core licensee of the 24M platform, Kyocera in Japan, already are in commercial operation with the same technology, albeit with a slightly different form factor and slightly different setup. But all in all, we are, of course, leveraging all of these things to provide comfort to our customers that we can and will produce these cells in accordance with what we are stipulating in the technical specifications for the cells in question. At the end of the day though, we need to provide sample cells from location, and that is what the Customer Qualification Plant will do. So these are some of the key ingredients in unlocking the final, let’s say, bankable project finance-based customer agreements, which, of course, Nidec is one of, but multiple others are sort of based principally on the same thing. So we are in process of converting several of the existing agreements we have, plus more in the making, as mentioned. So we’re quite confident that we will be able to move forward in accordance with the plan. So maybe on that, I’ll hand it over to Oscar to provide some more depth on the additional financing efforts that we’re undertaking and how we’re sort of seeing the general momentum in this regard. Oscar?

Yes. Thanks, Tom. So I think you hit it pretty well. I would just add that the balance between the long-term offtakes and merchant sales really comes to just – we see better economics, of course, in merchant sales. And the long-term contracts require a little bit of less pricing aggressiveness on our side to get those contracts in place. And so there is a balance between the two in our different debt service coverage ratios that we’re negotiating between merchant sales, which are more profitable and long-term offtakes, which are a little less profitable, and managing the two to get to the right debt sizing. So that’s really the dynamic that we’re working through. You also mentioned on Koch side, we have taken control of the JV, so we own more than 50% and we will be consolidating it going forward. They have been a really great partner in the development, they continue to be a good partner in the development of Giga Arctic, and then the site – sorry, Giga America and the site selection and then everything we’re doing, but the great part about where we sit today is now we can bring in partners that align better to actually having their own battery cell demand that they can use or other strategic and financial partners to finance this very big project over phases.

Thank you very much, guys, and best of luck going forward.

Our next question is from Maheep Mandloi from Credit Suisse. Maheep, your line is open. Please go ahead.

Hey. Good morning and thanks for taking the questions. On the U.S. plans, could you just talk more in detail about what talks you are having with customers? And in the past, you talked about potentially having a contract or a pipeline with U.S. customer, large U.S. customer. Would that now be kind of service with this factory or Norway factory, and any other details on that customer would be appreciated?

Good morning. So, as we have announced previously, we have announced multiple customer arrangements already, some are named, some are not, and some of them are clearly sort of U.S.-centric. But what I can say, generally speaking, is that in the ESS space, in the U.S., in particular, there is a lot of momentum around rolling out gigawatt hour scale ESS projects all over the country. And this is obviously something that offers opportunities to companies that want to have certain exposure upstream to that, let’s say, for us, downstream development. So, there is multiple opportunities in the existing customer grouping in this regard, both in terms of participating in Giga America per se, if that was to sort of be something we wanted to consider, but maybe more importantly, to forge upstream partnerships and downstream partnerships from cell production with companies that want to have security of supply and having product development for end applications and/or input factors into cell production located close to one of the larger cell manufacturing facilities in the U.S. So, if we – so we will obviously come back to the market with specific updates on that when we have formalized these relationships. What I can say is with the announcements, and obviously, leading up to the announcement, the intensity of those conversations, not only with our existing partners, but also with a broad variety of new ones has increased quite significantly. So, this is obviously for FREYR is becoming an asset that we will leverage in a maximum way to both strengthen our industrial development and strategic development and potentially financial development as well. And we will come back to the market with details on this when we have concluded some of these agreements. And we will do that on a running basis, of course, when they are concluded.

Thank you. Our next question is from Nellie Estler from Clarksman Securities [ph]. Nellie, your line is open. Please go ahead.

Hi guys. Thank you for taking my question. I was wondering if you could give just color on two topics. So, first is a broader question about your strategy. I have been following you for some while, and it’s my understanding that you have been very vocal back work mainly on ESS and potentially OEM deals. But then with the 3Q, I have been pressured with OEM build to be close. So, where could we see prior couple of years? Will we see a company doing sort of 50-50 EDSS, or how do you see yourself in, let’s say, 3 years, 4 years? So, that’s the first question. And my second question is regarding Giga America. You mentioned there is $410 million financial incentive package that you secured, and could you share some light on this and further detail?

Yes. So, thank you for this. Let me take the first question, and then I will pass the other question over to Oscar. So, on our strategy, we have always said, by the way, that we want to target all market we are close, but we are focusing our efforts initially on the ESS market for the reasons that I have been through in the presentation. That’s both a technology rationale and that in that 24M technology. However, competitive against conventional technology across all verticals in our opinion over time, especially competitive for the ESS market since we can build much larger integrate that growth. But we do see now that we can use the same form factor that we are using for energy storage applications for select commercial vehicle applications. So, think vehicle applications that don’t require fast charge, but can sort of charge overnight and have one or two charge, discharge cycles per day. This is a technology that is ideally suited for that. And we already have indications that we can slot these cells directly into modules and packs that fit into these commercial vehicles. So, then of course, we are also always been in deep dialogue with most of the electric vehicle manufacturers, not only from a 24M perspective, but also from potentially other technology solutions as well. And this is something that we will continue to mature, and see how we can sort of play into this space as well. We do believe that all of these stakeholders will increasingly want to regionalize or localized security of supply and being a stakeholder that is advancing now in two geographies simultaneously, is also increasing, let’s call it, the optional value of FREYR as a supplier for many of these stakeholders. So, you should expect moving forward to gradually or not – well, to continue to accelerate and increase our ESS penetration while we are gradually picking up the pace in the electric vehicle space. And the commercial vehicles will be somewhere in between there. I think we will actually have more demand and then we will have capacity to build at least in the short-term. So, it’s going to be a continuous optimization journey, as we have been saying all along. We optimize the value. We try to optimize what products we produce in a flexible production platform. We are also agnostic or let’s say, flexible in terms of what we actually produce where. But now we have secured prime industrial acreage in Giga America which, of course, together with our position in Norway and previous established rights to acreage in Finland gives us deep flexibility in terms of providing differentiated product offerings across the entire market segment. But with that, maybe hand it over to Oscar to provide some color on the incentive scheme in the U.S.

Thanks Tom. Yes. So, on the $410 million incentive package, that tied to spending, of course, and jobs creation. And the combination of incentives are some level of grants for things like the acquisition of lands as an example. But some of those brands are over time. But mostly their tax abatements around sales tax and also county-level property taxes and related taxes. And again, it’s really tied to the total spending package of really the multi-phase project over the next several years, quite a few years for the $2.6 billion total spend that the package is tied to. So, it’s spending on plant, equipment, all the phases, and then job creation is how you realize those incentives over time.

Thank you. Our next question is from Gabe Daoud from Cowen. Gabe, your line is open. Please go ahead.

Thank you and hey everybody. Thanks for all the prepared remarks. Tom, I guess I was just curious if you could talk a little bit about maybe some of the supply chain issues that or maybe no issues, but that are maybe impacting things. You mentioned there is still some equipment that needs to be delivered at CQP by the end of the year. So, I guess I was just curious if you could discuss a bit on what you are seeing around supply chain. And also on the labor front, if there is anything to note there as it seems like at least here in the U.S., some folks have been highlighting a shortage of key talent.

Yes. So, it’s a great question. So, the three – let’s call it three attributes to that one in terms of resources to do all of this, right. So first, machinery to CQP, as Jan Haugan mentioned, we will have the latest kit delivered before Christmas. And then we will start to connect the dots, so to speak, on all of it immediately after New Year. So, there is no sort of delay or any significant kind of issue when it comes to having the machinery on site. We already started to mix cathodes and anodes material in the slurry mixing, etcetera. We will be heating up, so to speak, the formation and aging machinery and so on. And then we will be implementing the casting and unit cell assembly machine, which is the heart of the whole thing. And that is, as I have said, scheduled to be delivered before Christmas. So, we don’t see any real issues related to that. Of course, it’s not trivial, any of this. Electrochemistry is hard. But we have very detailed plans, very strong support from a broad variety of stakeholders, including existing licensees at the 24M technology that has sort of been through this journey, plus of course, the own expertise that we have in-house plus the expertise from 24M. So, we are sort of working quite diligently across multiple verticals to ensure that we can rapidly start producing these initial cells. Then of course, it’s the raw material front. And as we did mention in the report, we have secured nearly all raw materials we need for the CQP up until 2028. We have secured it completely for the first couple of years. So, there is no sort of issue there. And we are two-thirds of the way there when it comes to materials for the Giga Arctic, at least up until 2028. Then of course, we are also looking at establishing our own capital manufacturing facility, which of course would strengthen that and working diligently across the entire raw material spectrum with strong stakeholders like ITOCHU and others that we have in the making, which we will be announcing on a regular basis is something that gives us a very strong comfort that the supply chain and raw material supply into Giga scale production is feasible, but you need to sort of be very active across multiple segments. And as we are localizing and regionalizing that capacity more and more, we are getting of course, stronger and stronger in terms of having secured our supply chain, so to speak. Core element, of course, both on cost/spend and decarbonization as mentioned. When it comes to the people front, knock-on wood, we have so far been able to recruit the people we need for the Customer Qualification Plant. And there is also a very strong interest to join us in our journey on Giga Arctic and already quite a lot of incoming requests from Giga America point of view. I want to sort of just remind everyone that our 24M platform is a highly also labor optimized facility. As we did mention, when we went public with the Giga Arctic sanctioning back in June, we can produce 3x as many batteries per employee with the 24M technology as conventional lithium-ion battery facilities do at much lower and smaller space, floor space, so to speak. So, even though the renderings that Jan Arve showed you taking over half of Lower Manhattan, it’s still 4x smaller-ish than a conventional facility having the same capacity. And that means that the labor is more engineering prone and sort of somewhat higher average education, even though we do need a broad variety of disciplines into the facility. So, so far knock-on wood, we haven’t really seen an issue on any of these, but that is not to say that it’s trivial. It is quite challenging, and we need to, of course, leverage all of our experience and all of our push in securing a machinery, raw material and people and do multiple pathways to ensure that we do that, but that’s why we built up this project execution and operational excellence-centric team, so that we could tackle these, from our opinion, obvious challenges that you will face when you build battery facilities. And so far, I think we are on good track. So, thank you for that question.

Thanks Tom. I guess if I could – that’s really helpful. I guess if I could just also ask a follow-up on the – maybe shifting gears to the technology side. You mentioned the 24M cells exhibiting top quartile energy density. I was just curious if you can maybe provide a little more color on that? And then also you noted how the technology is applicable to certain applications within automotive, maybe more so commercial versus passenger. But then I was just curious on the testing front, if there is anything you can talk to around the technology that you are eyeing for that end market? Thanks everyone.

Yes. So, on the testing, we will be working with our customers to sort of provide and more specific updates to the results of that in the coming – in the near future, so to speak. But we did see that we were on the top end when it comes to gravimetric energy density. And then we are seeing very stellar safety performance of the tests. These are LFP cells of decent sort of, let’s say, form factor size and we are building them slightly larger. But the safety test in particular was stellar, which is very encouraging. But even though we have really just recently started the optimization journey on the cathode and the anode side for our LFP cells, we are already seeing tests that sort of show them in the first quartile, so to speak, relative to conventional. And this is of course, extremely encouraging as we also have a broad variety of optimization opportunities of our sleeve, so to speak, which we are of course, testing and working on as we speak. And this is also something that we will be using in the Customer Qualification Plant to continuously try to optimize the products that we push to the market. So, that’s kind of on that front. When it comes to the applicability in electric vehicles, I think it’s fair to say that there is a lot happening in this regard, which we are not at liberty to disclose any details around at present. But generally speaking, the 24M technology is superior when it comes to lower C-rate applications, meaning a slower charge and discharge. Remember, most batteries have actually a quite slow discharge. Discharging all your energy over half an hour in a car, you wanted actually to last for at least six hours, seven hours, eight hours, to actually discharging that energy quite slowly. But it’s the speed at which you charge it, which is kind of the issue, especially for select passenger EV applications. But we do see many vehicle applications, not only on the commercial vehicle front, but also on the electric vehicle front that doesn’t require fast charge application. So, therefore, we can probably leverage the thickness and the size of the electrodes in its current form or slightly optimized form and still have a fairly large chunk of the electric vehicle market being relevant for us, right. But this is an educational journey to some extent, in terms of our existing product spectrum. And then of course, we are also working on how to optimize for the fast charge applications, specifically, this evolves around finding better electrolyte solutions that really speeds up the ionic conductivity to use the technical term of diffusion of the lithium-ions through the cathodes and the anodes. And we are seeing some quite interesting results in this regard. But we will of course, come back to the market and update the market on that. But this is obviously also something that some of the large OEMs find increasingly interesting also in the context of having localized and regional like security of supply. So, we will be updating you on a regular basis on this, but momentum is strong.

Awesome. Very helpful. Thanks everyone.

Thanks Gabe. Daisy, I believe we are ready for one more question please.

Of course, our last question today comes from Tyler DiMatteo from BTIG. Please go ahead. Your line is open.

Tyler, can you hear us?

I believe Tyler has just disconnected. So, I will hand back over for any closing remarks.

Great. Well, thank you all for your interest in the company. We look forward to catching up with you over the next several days. Please feel free to reach out with additional questions. And then we will see you on the road this quarter. Thanks for your time.