QUANTUMSCAPE CORP Management’s Discussion and Analysis of Financial Condition and Results of Operations. (Form 10-Q)

On November 25, 2020, Kensington acquired us. The Business Combination was
accounted for as a reverse recapitalization in accordance with U.S. GAAP. Under
this method of accounting, Kensington was treated as the "acquired" company for
financial reporting purposes. Except as otherwise provided herein, our financial
statement presentation includes (1) the results of Legacy QuantumScape and its
consolidated subsidiaries as our accounting predecessor for periods prior to the
completion of the Business Combination, and (2) the results of the Company
(including the consolidation of Legacy QuantumScape and its subsidiaries) for
periods after the completion of the Business Combination.

The following discussion and analysis should be read in conjunction with our
unaudited condensed consolidated financial statements and the related notes
appearing elsewhere in this Report. This discussion may contain forward-looking
statements based upon current expectations that involve risks and uncertainties.
Our actual results may differ materially from those anticipated in these
forward-looking statements as a result of various factors, including those set
forth in the section titled "Risk Factors" as set forth in this Report. Unless
the context otherwise requires, references in this "Management's Discussion and
Analysis of Financial Condition and Results of Operations" to "Legacy
QuantumScape", "the Company", "we", "us" and "our" refer to the business and
operations of Legacy QuantumScape and its consolidated subsidiaries prior to the
Business Combination and to QuantumScape Corporation and its consolidated
subsidiaries, following the closing of the Business Combination.

Insight

We are developing next-generation battery technology for electric vehicles and other applications. We believe our technology will enable a new class of batteries that meets the demands of wider market adoption. The solid-state lithium-metal battery technology we develop is designed to provide greater energy density, longer life, faster charging and greater safety compared to conventional lithium-ion batteries. of today.

We are a development stage company with no revenue to date, have incurred a net
loss from operations of approximately $95.9 million and $186.5 million for the
three and six months ended June 30, 2022, respectively, and an accumulated
deficit of approximately $2.2 billion from our inception through June 30, 2022.
We expect to incur significant expenses and continuing losses for the
foreseeable future.


Main trends, opportunities and uncertainties

We are a pre-revenue company. We believe that our performance and future success
depend on several factors that present significant opportunities for us but also
pose significant risks and challenges, including those discussed below and in
the section titled "Risk Factors" appearing elsewhere in this Report.

Product development

We are developing our battery technology with the goal of commercialization via
the production of C-sample battery cells made available for sale to a third
party. We have demonstrated capabilities of our solid-state separator and
battery technology in single-layer, four-layer, and 10-layer cells, and have
shown early 16-layer and 24-layer cell cycling data. We are now working to
develop A-sample battery cells, to validate the performance of these cells and
to continue to improve yield and performance of our battery cells.

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Our research and development currently includes programs in the following areas:

Multi-layering. We are working to continue increasing the number of layers in
our cells. We have demonstrated capabilities of our solid-state separator and
battery technology in single-layer, four-layer, and 10-layer solid-state cells
in commercially relevant areas (ranging from approximately 60x75mm to 70x85mm).
In 2022, we have announced early cycling test results for 16-layer and 24-layer
cells also in commercially relevant areas. In order to advance the maturity of
our prototype cells and produce commercially-viable solid-state battery cells,
we must produce battery cells with dozens of layers, the exact number of which
depends on our customers' requirements. We are targeting two to four dozen
layers for our A-sample battery cells and additional layers for our B-sample
battery cells - depending upon customer preference, cell design considerations,
and other factors. We will need to overcome the developmental challenges to
increase the layer count and implement the appropriate cell design for our
solid-state battery cell.

Continuous improvement in the quantity, quality and consistency of our solid state separator. We are working to improve the quantity, quality and regularity of our solid-state separators, to further improve, among other things, the cycling behavior, the power, the operating conditions of our cells and to continue to reduce the thickness separators.

Improvement of our separator manufacturing process. We use a method of
continuous processing found at scale in both the battery and ceramic industries
and are working on continuous improvement of this process, including better
consistency and higher throughput. Regarding consistency, tightening the
variability of separator quality results in better yield. Regarding throughput,
increasing the volume of separator production results in the increased
quantities required for higher layer counts and delivery of more test cells to
prospective customers. We are automating our manufacturing process and
purchasing larger-scale manufacturing equipment. We will need to substantially
improve our manufacturing processes to increase throughput required for higher
layer counts and to achieve the cost, performance and volume levels required for
commercial shipments.

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Continued improvement of the cathode. Our cathodes use a conventional cathode
active material such as NMC mixed with a catholyte. We plan to benefit from
industry cathode chemistry improvements and/or cost reduction, which in the
future may include use of other cathode active materials, including cobalt-free
compositions, including LFP, as well as cathode processing advances such as dry
electrode processing. Over the years, we have developed catholytes made of
differing mixtures of organic polymer and organic liquid electrolyte to optimize
performance across multiple metrics such as voltage, temperature, power, and
safety, among others. We continue to test solid, gel and liquid catholytes in
our cells. The solid catholyte is part of our ongoing research and development
investigation into inorganic catholytes. Our solid-state catholyte platform is
being designed to enable high rates of charge and discharge for even thicker
cathode electrodes, which when combined with a lithium-metal anode, may further
increase cell energy densities.

Our team of over 750 scientists, engineers, technicians, and other staff is
highly motivated and committed to solving these challenges ahead. However, any
delays in the completion of these tasks will require additional cash use and
delay market entry. As we grow our team, expand the size of our engineering line
capacity, and build-out and bring up QS-0 and QS-1, we expect our rate of cash
utilization to also increase significantly.

Process development

Our architecture depends on our proprietary solid-state ceramic separator which
we plan to manufacture ourselves. Though our separator's design is unique, its
manufacturing relies on well-established, high-volume production processes
currently deployed globally in other industries at large scale.

The solid-state separator is being designed to enable our 'anode-free'
architecture. As manufactured, our solid-state battery cell has no anode; the
lithium-metal anode is formed during the first charge of the cell; 100% of the
lithium that forms the anode comes from the cathode material we purchase.
Eliminating the anode bill of materials and associated manufacturing costs found
in conventional lithium-ion cells could result in a meaningful cost of goods
sold advantage for us. In addition, our solid-state battery cell is being
designed to reduce the time and capital-intensity of the formation process step
as compared to conventional lithium-ion manufacturing.

We are focused on the continued expansion of the throughput and capability of
our San Jose, California engineering line as well as the planning and setup of
QS-0 and planning for QS-1. As part of the continued expansion of our throughput
we are automating our manufacturing process and purchasing larger-scale
battery-cell manufacturing equipment. We will need to substantially improve our
battery cell manufacturing processes to increase throughput required for higher
numbers of battery cells and to achieve the cost, performance and volume levels
required for commercial shipments.

Continued expansion of the throughput and capability of our San Jose engineering
line and QS-0 serves three purposes. First, the engineering line and QS-0 are
intended to provide a sufficient quantity of solid-state separators and cells
for internal development, customer sampling (including pre A-sample, A-sample,
and B-sample cells), and marking the start of commercialization via production
of C-sample cells made available for sale to a third party. Second, our San Jose
engineering line and QS-0 are intended to provide the basis for continued
manufacturing process development and help inform tool selection and
specifications for equipment for QS-1. Delays in the successful buildout of our
San Jose engineering line and QS-0 may impact both our development and the QS-1
timelines. And third, as we continue to buildout our manufacturing capabilities,
we target the initial production of C- sample battery cells at QS-0.

We will need to achieve significant cost savings in battery design and
manufacturing, in addition to the cost savings associated with the elimination
of an anode from our solid-state battery cells, while controlling costs
associated with the manufacture of our solid-state separator, including
achieving substantial improvements in throughput and yield required to hit
commercial targets. Further, we will need to capture industry cost savings in
the materials, components, equipment, and processes that we share, notably in
the cathode, cell design, and factory.

Marketing and market concentration

Delivery of the A sample represents the beginning of the automotive
qualification process, which involves several major delivery milestones - A, B
and C samples - followed by the start of production. Each major sampling stage
may consist of several generations of increasingly mature prototypes. We are
currently targeting approximately 18 months between the A sample and prototype
B-sample cells, which may use some low-volume processes. We anticipate a similar
timeframe to go from B samples to C samples. Of course, these timelines involve
uncertainty and will be influenced by a number of factors, including product and
process development risks; the specification, ordering, and qualification of
production tooling; other supply chain dynamics; and OEM validation timeframes.

We are currently targeting the initial production of C-sample battery cells at
QS-0. We have demonstrated the performance capabilities of our solid-state
separator and battery technology in single-layer, four-layer, and 10-layer
solid-state cells and more recently announced early cycling test results of
16-layer and 24-layer solid-state cells, in each case in commercially relevant
areas (ranging approximately from 60x75mm to 70x85mm). We will work to continue
improving quality, consistency, and throughput and optimize all components of
the cell. We will continue to work to further develop and validate the volume
manufacturing processes to enable high volume manufacturing and minimize
manufacturing costs. Finally, we intend to continue to use and expand on our
engineering line in San Jose to prepare for high volume manufacturing, to
continue to order QS-0 equipment and prepare QS-0, and to plan QS-1 through our
joint venture partnership with Volkswagen.

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QS-1, to be built and run by QSV, and the subsequent QS-1 Expansion, would
represent a small fraction of Volkswagen's demand for batteries and implies
vehicle volumes under 2.5% of Volkswagen's total production in 2021, assuming a
100kWh battery pack size. Our goal is to significantly expand the production
capacity of the joint venture, in partnership with Volkswagen, to meet more of
their projected demand. While Volkswagen is the first automotive original
equipment manufacturer ("OEM") that we signed an agreement with the goal of
commercializing vehicles using our battery technology, we intend to work closely
with other OEMs to make our solid-state battery cells widely available over
time. In addition to Volkswagen, we have signed customer sampling agreements
with five other OEMs, ranging from top ten manufacturers by global revenue to
premium performance and luxury carmakers, to collaborate with us in the testing
and validation of our solid-state battery cells with the goal of providing such
cells to the OEM for inclusion into pre-production prototype vehicles and
ultimately into serial production vehicles. The agreement follows testing of the
Company's early-stage cells by the OEM in its labs. We are currently focused on
automotive EV applications, which have among the most stringent sets of
requirements for batteries. However, we recognize that our solid-state battery
technology has applicability in other large and growing markets including
stationary storage and consumer electronics such as smartphones and wearables
and intend to explore opportunities in those areas as appropriate.

We believe that our technology enables a variety of business models. In addition
to joint ventures, such as the one with Volkswagen, we may operate solely-owned
manufacturing facilities or license technology to other manufacturers. We intend
to continue to invest in research and development to improve battery cell
performance, improve manufacturing processes, and reduce cost.

Access to capital

Assuming we do not experience any significant delays in the research and development of our solid-state battery cells, we believe our cash resources will last through 2024. However, any delays could materially impact us. .

Regulatory landscape

We operate in an industry that is subject to many established environmental
regulations, which have generally become more stringent over time, particularly
in hazardous waste generation and disposal and pollution control. Regulations in
our target markets include economic incentives to purchasers of EVs, tax credits
for EV manufacturers, and economic penalties that may apply to a car
manufacturer based on its fleet-wide emissions which may indirectly benefit us
to the extent that the regulations expand the market size of EVs. While we also
expect environmental regulations to provide a tailwind to our growth, it is
possible for certain regulations to result in margin pressures. Trade
restrictions and tariffs, while historically minimal between the European Union
and the United States where most of our production and sales are expected, are
subject to unknown and unpredictable change that could impact our ability to
meet projected sales or margins.

COVID-19[feminine]

Beginning in March 2020, the COVID-19 pandemic and the measures imposed to
contain this pandemic have disrupted and may continue to impact the Company's
business. In California and other cities across the world, although many of the
COVID-19 restrictions have been removed, there is still concern that some or all
of these restrictions may be reimposed if there are new variants (which may be
more contagious or severe and may be less responsive to vaccines or treatments)
and resurgences of COVID-19 cases. The magnitude of the impact of the COVID-19
pandemic (or epidemics) on the Company's supply chain, productivity, results of
operations and financial position, and its disruption to the Company's business
and battery development and timeline, will depend in part, on the length and
severity of these restrictions and on the Company's ability to conduct business
in the ordinary course.

Basis of Presentation

We currently conduct our business through one operating segment. As a
pre-revenue company with no commercial operations, our activities to date have
been limited and were conducted primarily in the United States. Our historical
results are reported under U.S. GAAP and in U.S. dollars. Upon commencement of
commercial operations, we expect to expand our global operations substantially,
including in the United States and the European Union, and as a result we expect
our future results to be sensitive to foreign currency transaction and
translation risks and other financial risks that are not reflected in our
historical financial statements. As a result, we expect that the financial
results we report for periods after we begin commercial operations will not be
comparable to the financial results included in this Report.

Components of operating results

We are a research and development stage company and we have not generated any
revenues to date. Our historical results may not be indicative of our future
results for reasons that may be difficult to anticipate. Accordingly, the
drivers of our future financial results, as well as the components of such
results, may not be comparable to our historical or projected results of
operations.

Operating Expenses

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Research and development costs

To date, our research and development expenses have consisted primarily of
personnel-related expenses for scientists, experienced engineers and technicians
as well as costs associated with the expansion and ramp up of our engineering
and QS-0 facilities in San Jose, including the material and supplies to support
the product development and process engineering efforts. As we ramp up our
engineering operations to complete the development of our solid-state,
lithium-metal batteries and required process engineering to meet automotive cost
targets, we anticipate that research and development expenses will increase
significantly for the foreseeable future as we expand our hiring of scientists,
engineers, and technicians and continue to invest in additional plant and
equipment for product development (e.g. multi-layer cell stacking, packaging
engineering), building prototypes, and testing of battery cells as our team
works to meet the full set of automotive product requirements. We also recognize
significant non-cash stock-based compensation to employees directly involved in
research and development activities. For stock-based compensation awards with
performance and market conditions, such as the awards granted under our
Extraordinary Performance Award Program (the "EPA Program") in December 2021,
the non-cash expense recognized is based on a probability assessment of the
performance conditions, and as such, we expect research and development expenses
to fluctuate in the future as the performance conditions are re-assessed at each
reporting period. Further, should the stated market conditions of the EPA
Program grants be achieved prior to the expected achievement period, we would
accelerate the stock-based compensation expense recognized, which could result
in significant fluctuations in research and development expense recognized in
the future. For more information on the EPA Program and grants thereunder, see
Note 9 to our unaudited consolidated financial statements elsewhere in this
Report.

As we progress to commercial manufacturing operations, we will begin to incur expenses directly associated with manufacturing, including the allocation of research and development overhead costs.

General and administrative costs

General and administrative expenses consist mainly of personnel-related expenses
for our executive, sales and marketing and other administrative functions and
expenses for director and officer insurance and outside professional services,
including legal, accounting and other advisory services. We are rapidly
expanding our personnel headcount and supporting systems, in anticipation of
planning for and supporting the ramp up of commercial manufacturing operations
and due to the ongoing requirements of being a public company. Accordingly, we
expect our general and administrative expenses to increase significantly in the
near term and for the foreseeable future. Upon commencement of commercial
operations, we also expect general and administrative expenses to include
customer and sales support and advertising costs. We also recognize significant
non-cash stock-based compensation to executives and certain employees. The
non-cash expense recognized for EPA Program grants is based on a probability
assessment of the performance conditions, and as such, we expect general and
administrative expenses to fluctuate in the future as the performance conditions
are re-assessed at each reporting period. Further, should the stated market
conditions of the EPA Program awards be achieved prior to the expected
achievement period, we would accelerate the stock-based compensation expense
recognized, which could result in significant fluctuations in general and
administrative expense recognized in the future.

As we progress to commercial manufacturing operations, we will begin to incur expenses directly associated with manufacturing, including the allocation of overhead costs for general and administrative activities.

Other income (expenses)

Interest charges

Interest expense consists primarily of interest expense associated with the leases of our QS-0 facilities.

Interest Income

Interest income consists primarily of interest income from marketable securities.

Other income (expenses)

Our other income (expenses) consists of miscellaneous income and expenses.

Income Tax Charge/Profit

Our provision for income taxes consists of an estimate of WE federal and state income taxes based on prevailing rates, as adjusted for credits, deductions, uncertain tax positions, changes in deferred tax assets and liabilities, and changes in tax law. We maintain a valuation allowance on the full value of our WE and report net deferred tax assets as we believe that the recoverability of tax assets is not more likely than not.

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Operating results

Comparison of three and six month periods ended June 30, 2022 at the three and six months ended June 30, 2021

The following table sets forth our historical operating results for the periods indicated (amounts in thousands):

                              Three Months Ended June 30,             $             %            Six Months Ended June 30,            $             %
                               2022                 2021            Change        Change            2022              2021          Change        Change
Operating expenses:
Research and
development               $       65,133       $       35,776     $   29,357           82 %    $      126,478       $  65,241     $   61,237           94 %
General and
administrative                    30,740               13,846         16,894          122 %            60,052          29,056         30,996          107 %
Total operating
expenses                          95,873               49,622         46,251           93 %           186,530          94,297         92,233           98 %
Loss from operations             (95,873 )            (49,622 )      (46,251 )         93 %          (186,530 )       (94,297 )      (92,233 )         98 %
Other income (loss):
Interest expense                    (607 )               (238 )         (369 )        155 %            (1,207 )          (238 )         (969 )        407 %
Interest income                    1,510                  349          1,161          333 %             2,326             596          1,730          290 %
Change in fair value of
assumed common stock
warrant liabilities                    -              130,504       (130,504 )       (100 )%                -          99,740        (99,740 )       (100 )%
Other (expense) income               133                   (5 )          138        (2760 )%              221              98            123          126 %
Total other income
(loss):                            1,036              130,610       (129,574 )        (99 )%            1,340         100,196        (98,856 )        (99 )%
Net income (loss)                (94,837 )             80,988       (175,825 )       (217 )%         (185,190 )         5,899       (191,089 )      (3239 )%
Less: Net loss
attributable to
non-controlling
interest                              (8 )                  -             (8 )        100 %                (9 )           (10 )            1          (10 )%
Net income (loss)
attributable to common
stockholders              $      (94,829 )     $       80,988     $ (175,817 )       (217 )%   $     (185,181 )     $   5,909     $ (191,090 )      (3234 )%



Research and Development

The increase in research and development expense in the three months ended June
30, 2022 compared to the three months ended June 30, 2021 primarily resulted
from the $10.3 million increase in personnel cost due to the growth in research
and development headcount to support our battery technology development, an
increase of $5.4 million in facility expenses primarily related to the QS-0
facility, an increase of $2.5 million related to depreciation and amortization,
an increase of $1.9 million in engineering and research and development
consulting fees, outside services and other, and an increase of $1.1 million for
research and development material supplies and equipment maintenance expenses to
support the growth in product development and manufacturing engineering efforts.
Additionally, non-cash stock-based compensation expense increased by $8.2
million from $6.6 million for the three months ended June 30, 2021 to $14.8
million for the three months ended June 30, 2022 primarily due to the effect of
restricted stock units ("RSU") granted subsequent to June 30, 2021 and the EPA
Program grants in December 2021.

The increase in research and development expense in the six months ended June
30, 2022 compared to the six months ended June 30, 2021 primarily resulted from
the $22.5 million increase in personnel cost due to the growth in research and
development headcount to support technology development, an increase of $8.7
million in facility expenses primarily related to the QS-0 facility, an increase
of $6.1 million related to depreciation and amortization, an increase of $4.5
million in engineering and research and development consulting fees, outside
services and other, and an increase of $4.4 million in material supplies and
equipment maintenance to support the growth in product development and
manufacturing engineering efforts. Additionally, non-cash stock-based
compensation expense increased by $15.0 million from $13.0 million for the six
months ended June 30, 2021 to $28.0 million for the six months ended June 30,
2022 primarily due to the effect of RSUs granted subsequent to June 30, 2021 and
the EPA Program grants in December 2021.



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General and administrative

The increase in general and administrative expenses in the three months ended
June 30, 2022 compared to the three months ended June 30, 2021 primarily
resulted from the $3.6 million increase in professional fees and other corporate
expenses due to costs associated with business growth and an increase of $1.7
million in personnel costs due to the headcount increase to support business
growth. Additionally, non-cash stock-based compensation expense increased by
$11.2 million, from $5.0 million for the three months ended June 30, 2021 to
$16.1 million for the three months ended June 30, 2022 primarily due to the
effect of RSUs granted subsequent to June 30, 2021 and the EPA Program grants in
December 2021.

The increase in general and administrative expenses in the six months ended June
30, 2022 compared to the six months ended June 30, 2021 primarily resulted from
the $6.2 million increase in professional fees and other corporate expenses due
to costs associated with business growth and an increase of $3.1 million in
personnel costs due to the headcount increase to support business growth.
Additionally, non-cash stock-based compensation expense increased by $21.1
million, from $10.3 million for the six months ended June 30, 2021 to $31.4
million for the six months ended June 30, 2022 primarily due to the effect of
RSUs granted subsequent to June 30, 2021 and the EPA Program grants in December
2021.

Interest Expense

The increase in interest charges during the quarters and six-month periods ended June 30, 2022 was due to interest expense associated with a finance lease, which commenced in May 2021.

interest income

The increase in interest income during the three and six months ended June 30,
2022 compared to the three and six months ended June 30, 2021 was mainly due to
an increase in the interest rate.

Change in fair value of deemed liability for common share purchase warrants

The change in fair value of Assumed Common Stock Warrant liabilities was due to
the change in the estimated non-cash fair value of the Public and Private
Placement Warrants at the end of each reporting period or through the exercise
of the warrants.

All Assumed Common Stock Warrants were exercised or redeemed as of December 31,
2021, and there was no remaining liability for Assumed Common Stock Warrants as
of December 31, 2021.

Cash and capital resources

As of June 30, 2022 and December 31, 2021, our principal sources of liquidity
were our cash and cash equivalents and marketable securities in the amount of
approximately $1.3 billion and $1.4 billion, respectively. Our cash equivalents
are invested in U.S. money market funds, U.S. Treasury bonds and commercial
paper. Our marketable securities are invested in U.S. Treasury notes and bonds,
commercial paper, and corporate notes and bonds.

We have yet to generate any revenue from our business operations. To date, we
have funded our capital expenditure and working capital requirements through
equity as further discussed below. Our ability to successfully develop our
products, commence commercial operations and expand our business will depend on
many factors, including our working capital needs, the availability of equity or
debt financing and, over time, our ability to generate cash flows from
operations.

Prior to the Business Combination, we financed our operations primarily from the
sales of redeemable convertible preferred stock. In connection with the Business
Combination, we received net cash proceeds of approximately $676.9 million.
Additionally, after the Business Combination, during the year ended December 31,
2020, we received proceeds of approximately $99.8 million from the Series F
Preferred Stock Purchase Agreements.

During the year ended December 31, 2021, we completed the March 2021 Public
Offering for aggregate net cash proceeds of $462.9 million. In April 2021, we
received $100 million from VGA pursuant to our achievement of the technical
milestone specified in the Series F Preferred Stock Purchase Agreements. Also,
during the year ended December 31, 2021, all Assumed Common Stock Warrants were
exercised or redeemed and we received net proceeds of $151.4 million.

We believe that our cash on hand will be sufficient to meet our working capital
and capital expenditure requirements for a period of at least twelve months from
the date of this Report. Assuming we experience no significant delays in the
research and development of our solid-state battery cells, we believe that our
cash resources will last through 2024. However, any delays could materially
impact us. We may, however, need additional cash resources due to changed
business conditions or other developments, including unanticipated delays in
negotiations with automotive OEMs and tier-one automotive suppliers or other
suppliers, supply chain challenges, disruptions due to the COVID-19 pandemic,
competitive pressures, and regulatory developments, among others. To the extent
that our current resources are insufficient to satisfy our cash requirements, we
may need to seek additional equity or debt financing. If such financing is not
available, or if the financing terms are less desirable than we expect, we may
be forced to decrease our level of investment in product development or scale
back our operations, which could have an adverse impact on our business and
financial prospects.

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Cash flow

The following table provides a summary of our cash flow data for the periods indicated (amounts in thousands):

                                                        Six Months Ended 

June 30th,

                                                          2022              

2021

Net cash used in operating activities                 $     (98,733 )     $  (54,435 )
Net cash (used in) provided by investing activities         116,633         (330,539 )
Net cash provided by financing activities                     4,768         

683 648

Cash flow from operating activities

Our cash flows used in operating activities to date have been primarily driven
by the growth in our underlying business to support the research and development
of our next-generation of battery technology. As we continue to ramp up hiring
for technical headcount to accelerate our engineering efforts ahead of starting
the pre-pilot and pilot line operations, we expect our cash used in operating
activities to increase significantly before we start to generate any material
cash flows from our business. To support our research and development activities
and our plan to expand our pre-pilot manufacturing capability, we are expecting
cash payments of $6.7 million during the next twelve months and $86.7 million
thereafter for the operating lease commitments as of June 30, 2022. From time to
time we also enter into non-cancellable service and purchase commitments. We are
expecting cash used in operating activities to include payments of approximately
$2.3 million in the next twelve months and approximately $10.0 million
thereafter through 2027 for our non-cancellable commitments as of June 30, 2022.
As we complete the development of our solid-state, lithium-metal batteries and
required process engineering to meet automotive cost targets, we anticipate that
research and development operating expenses will increase significantly for the
foreseeable future.

Cash used in operating activities for the six months ended June 30, 2022 was
primarily driven by a net loss of $185.2 million offset by non-cash of $59.4
million related to stock-based compensation, non-cash expense of $10.5 million
related to depreciation and amortization, non-cash expense of $3.7 million
related to amortization of premiums and accretion of discounts on marketable
securities, and non-cash lease expense and amortization of right-of-use assets
of $3.7 million. This was partially offset by an increase of $5.2 million in
prepaid and other assets, an increase of $2.1 million in asset retirement
obligation related to certain leased facilities and a $0.7 million in accounts
payable and accrued liabilities mainly driven by higher period-over-period
spending in payroll, materials and supplies, professional services and general
and administrative to support the growth of the business, specifically in the
research and development of our battery technology.

Cash used in operating activities for the six months ended June 30, 2021 was
primarily driven by a net income of $5.9 million offset by the non-cash income
of $99.7 million for the change in fair value of Assumed Common Stock Warrant
liabilities, non-cash expense of $23.3 million related to stock-based
compensation, non-cash expense of $5.4 million related to amortization of
premiums and accretion of discounts on marketable securities, and non-cash
expense of $5.2 million related to depreciation and amortization.

Cash flow from investing activities

Our cash flows from investing activities to date have been comprised of
purchases of property and equipment and purchases, maturities and sales of our
marketable securities. We expect the level of capital investment to increase
substantially in the near future as we fully build out our engineering lines as
well as acquire the property and equipment for QS-0.

Cash provided by investing activities for the six months ended June 30, 2022
primarily consists of the maturity and sale of marketable securities of $419.2
million and $15.1 million, respectively, offset by $250.8 million used for the
purchase of marketable securities. Cash provided by investing activities also
reflects $66.9 million of cash used for various property and equipment,
primarily to support our research and development activities.

Cash provided by investing activities for the six months ended June 30, 2021
primarily consists of proceeds from the maturities of marketable securities of
$411.0 million. Proceeds from the sales of marketable securities was $121.5
million. These proceeds were offset by $819.3 million of cash used for the
purchase of marketable securities, and $43.7 million of cash used for various
property and equipment expenditures.

Cash flow from financing activities

Our cash flows from financing activities primarily consist of proceeds from the
exercise of stock options. Finance lease commitment for QS-0 will result in net
cash payments of $2.9 million in the next twelve months and payments of $51.9
million thereafter.

Cash provided by financing activities during the six months ended June 30, 2022
is primarily due to $5.0 million received from the exercise of stock options and
our employee stock purchase plan.

Cash provided by financing activities during the six months ended June 30, 2021
is primarily related to $462.9 million in net proceeds received from the March
2021 Public Offering, $112.3 million received from the exercise of Public
Warrants, $99.9 million in net proceeds received from the Series F Preferred
Stock Agreements and approximately $9.5 million received from the exercise of
stock options.



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Off-balance sheet arrangements

We are not a party to any off-balance sheet arrangements, as defined in SECOND
rules.

Significant Accounting Policies and Estimates

Our financial statements have been prepared in accordance with U.S. GAAP. In the
preparation of these condensed consolidated financial statements, we are
required to use judgment in making estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities as of the date of the financial statements, as well as
the reported expenses incurred during the reporting periods.

We consider an accounting judgment, estimate or assumption to be critical when
(1) the estimate or assumption is complex in nature or requires a high degree of
judgment and (2) the use of different judgments, estimates and assumptions could
have a material impact on the consolidated financial statements. Our significant
accounting policies are described in Note 2 to our condensed consolidated
financial statements elsewhere in this Report. Our critical accounting policies
and estimates were described in Part II, Item 7, "Critical Accounting Policies
and Estimates" in our Annual Report. There have been no material changes to our
critical accounting policies and estimates since our Annual Report.

Recent accounting pronouncements

See   Note 3   to the condensed consolidated financial statements elsewhere in
this Report for more information about recent accounting pronouncements, the
timing of their adoption, and, to the extent it has made one, of their potential
impact on our financial condition and its results of operations and cash flows.

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