February 28, 2022 – On today’s podcast we welcome special guest, SES President Rohit Makharia. SES is a leader in the development and manufacturing of high-performance Lithium-Metal rechargeable batteries for electric vehicles.
On the show, Rohit discusses:
- Some of the innovations and breakthroughs in battery tech that he has worked on over his career
- Why investors and consumers should care about lithium metal batteries
- SES’s revenue ramp and future path to profitability
- His thoughts on the SPAC merger process
- And more
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Welcome investors to The Absolute Return Podcast. Your source for stock market analysis, global macro musings and hedge fund investment strategies, your hosts, Julian Klymochko, and Michael Kesslering aim to bring you the knowledge and analysis you need to become a more intelligent and wealthier investor. This episode is brought to you by Accelerate Financial Technologies. Accelerate because performance matters. Find out more at accelerateshares.com.
Julian Klymochko: All right. Welcome listeners. We are here, live with SES President Rohit Makharia. Rohit, welcome to the show. How are you today?
Rohit Makharia: Thanks Julian. Thank you very much. I’m good.
Julian Klymochko: Great to have you on. And you must be a busy guy lately. SES just went public on the New York Stock Exchange, which we’re going to get into later on in the show. Prior to getting into that, I wanted to set the stage. Just going to your background. So, we want to focus the podcast on battery technology and all the cool things that you’ve been up through too. Not, not only at SES, but earlier on in your career, you spent 19 years at General Motors, including 12 years in battery and fuel cell development, seven years in Venture Investment. Can you discuss some of the innovations and technological breakthroughs that you worked on while you were there?
Rohit Makharia: Yeah, sure. You know, a lot, in fact, I just describe my career at General Motors, that being at the etch of the innovation, the whole time I was there, 19 years, like you mentioned, it started in fuel cells. And that was quite exciting because fuel cells for those who don’t know, it’s a dance engine that runs on hydrogen and the ideas to run it on clean hydrogen. And so, the only tail pipe emissions you get with that technology is water. So again, it’s one of those technologies that can really help with climate change. Very early on, very motivated to make an impact in that space. So that’s how I joined that team. Very early on, this team was just coming to fruition, you know, I was probably the first few 10 employees that joined the company.
And then from there on, we did a lot of work on new materials, but really what was most impressive about that experience was that we grew the team. It was, as much a learning in business as it was in technology where we grew the team from a few ten people team to, I think at a high point, we were over 400 people in a very short period of time in a matter of few years, four to five years. So that was a really nice high growth organization. But then on the technology, there was a lot of innovation that was happening back in the labs there, where we started with materials, and we took it all the way into vehicles. So, we were doing research in materials, chemistry labs, material signs, but then we were also taking that material, you know, making fuel cell stacks, which is, kind of like battery cells and packs and modules. And then putting them in an engine and then putting them in a vehicle and then giving those go to customers to test and give feedback and do the whole loop all over again. So, that team was fantastic, a lot of innovation on the materials itself, but overall, we were really proud to put, you know, many millions of miles on fuel cell vehicles in real world driving test. That experience led me to batteries because batteries also is electrochemical system, just like fuel cells. You’re turning chemicals into electricity; you’re turning chemicals into clean electricity. And so, in the battery, when you charge the battery, you put electricity in, that’s how you give energy into the battery. And when you drive the battery, you pull energy out. So, this electric chemical system was a really good transition point for me.
My group, we started to do some research and battery materials, sort of really advanced materials. And then eventually I was responsible for the product, the battery cell that is in the Chevy Bolt, and this was back in 2012, 2014 now timeframe and the Chevy Bolt eventually came out in 2016, but this was a really fun and challenging project. Really fun and challenging work because electric vehicles, what we wanted to do was make a car that would go over 200 miles and really eventually went over 225 miles, but would cost much, much cheaper than electric vehicles that were available today. So, Chevy Bolt was sort of one of those first few mass market cars that try to break the mold and create a vehicle that could give that, you know, reasonably long range at a cheap price, at a reasonable price.
And for that again, on the battery side, a lot of innovation was required. We worked with startups, we worked with our supplies around the globe, like LG Chemical. And we bought that battery into a vehicle eventually as part of GM. And as I was working through that startup, through many different battery startups over that time. I got to know of the GM Ventures Group, and then I joined the GM Ventures Group to make investments in startups. That was also fantastic experience, just a variety of different technologies in the automotive space. You can imagine, right? Clean energy, autonomous technology, advanced lightweight materials, advanced manufacturing, advanced business models, blockchain, you name it. So, it was really a bird’s eye view of the tech stack that goes into our automotive.
And frankly, that stack touches a lot the world that we live in. And really, one of the key things that I did there as well is looked at a lot of battery startups, a lot of diligence on battery starts. In fact, that’s how I got to know SES. This was my beginning of the journey with SES when GM Ventures, we made the investment in SES in 2015, shortly after I served on the board of SES for many years before joining the company as president and COO, so here I am. The whole 19 years has been fantastic, but there’s been a thread there that has taken me to SES which has been in the making for quite some time.
Julian Klymochko: Very interesting background. I want to do a deep dive into SES technology. What I found interesting is you have experienced, you mentioned different components and different types of, you know, you’re focused on Li-Metal batteries now, but you also mentioned hydrogen fuel cells. Can you talk about SES technology? Why Li-Metal batteries and why not hydrogen fuel cells? Like will those ever work or are Li-Metal batteries just far more effective?
Rohit Makharia: Sure. You know, we’ll quickly get back to batteries from fuel cell because, you know, I also transition from batteries to fuel cell because for the impact that the world needs to see from advanced, you know, propulsion systems or advanced systems that engines that can run on clean energy especially for a geography like North America, batteries are really well suited. And when you particularly talk about passenger cars, the kind of cars that you and I drive and everybody else drives, which really is responsible for, you know, the majority share of the fossil fuel consumption, the oil consumption as it really to traveling and mobility. Batteries are just a much better option, both from perspective of cost, you know, where it gets cheaper, faster. Also, the scale that the batteries are now being manufactured at has helped quite a bit.
And then also infrastructure. One of the key reasons batteries are so interesting. It’s because you have an infrastructure that is present in many ways and in everyone’s garage, you know, I’d rather EV and you can come in and plug, plug the vehicle. For hydrogen, you have to build hydrogen stations, which is a really, really arduous task. And this is one of the reasons why batteries have really taken off over time. Particularly with SES, the Li-Metal battery is actually a flavor of battery, which is squarely next generation batteries. All of the EVs that you see on the road today, almost all of them are made out of Li-Metal batteries. Li-Metal batteries have been fantastic for the world. It was commercialized late nineties, early 2000 by Sony. You might have used their digital cameras with these rechargeable batteries that you plug in, you know, back in day, and then eventually the same chemistry, the same technology as a whole made its way into vehicles.
And over the last decade, lithium-ion has been a really, really fantastic platform for electric vehicles and has given us all the electric vehicles that you see on the road today. And one of the things that has happened is that now with lithium-ion, you are able to make cars that are good enough, that drive 300 miles, that drive 350 miles. And so, with that comes scale and the cost of reducing, but one of the things that customers desire, you know, based on my own experience, I know this and really anyone who’s driven an EV will know this. Customers want, you know, 400, 500 miles of range so that they don’t have to worry about charging on those longer trips and Li-Metal technology is really well suited to give that extended range to passengers. So, you can actually put enough battery in a vehicle so that you can get that 400 plus 500-mile range on a single charge. And so, from our perspective, SES is a company that was founded in 2012. Since the beginning, it has been focused on Li-Metal because we knew Li-Metal, when it comes to battery technology, without going too deep into it, is the end game. You can have a lot of points in the middle, incremental technology improvements, but if you want to go and actually get to the end point of where the technology sort of does, you know, does the best for the world and performs the best, you want to go and work with Li-Metal. So since then, the company’s been working Li-Metal. We are finally at a point, we we’ve done a lot of technology development over the last eight years, and now we are working with many customers. We’ve announced, we are working with General Motors. We are working with Hyundai, Honda on bringing these kinds of batteries into vehicles.
Michael Kesslering: Yeah, and I couldn’t agree with you more with regards to, you know, how important it is to expand that range. I mean, personally, I grew up in small town, Canada, and if you don’t have a wide enough range, it’s just not practical. I couldn’t agree more. In terms of, for the rollout of your facilities. Can you talk a little bit more about your pilot facility, the one-gigawatt facility and then the expansion facility, which is 30 gigawatts and so some of the economics behind those facilities and the scaling of your production?
Rohit Makharia: Yeah, sure. This squarely gets into our growth plan. You know, one of the announcements that we made in November when we hosted our first battery world event, was that we showed the world for the first time a Li-Metal cell that is more than a hundred-amp hours. And, also more than 400-watt hour per kilogram. Now that’s a lot of numbers and units, but what this means is, that we show the world the first Li-Metal cell, which was sized, right. To actually go into an electric vehicle. Now, a lot of work needs to be done along with our partners, that kind of names I mentioned before, the automakers to get this cell to a point where it actually shows up in a vehicle where you can go into a dealership and buy it.
But from a perspective of sort of transitioning the company from an R&D lab to a company that is focused on creating a product, this was our first demonstration of that, which we were really proud of. And along with that, we also announced the Shanghai Giga. Now, one of the unique things, in fact. Today is a very, you know, it’s a day that we announce actually another facility. And I’ll get to Shanghai Giga in a minute. The one thing that is unique about SES, when you look at SES as compared to many other battery technology companies, not battery companies that actually sell batteries into vehicles, but battery technology companies is that we are a company that is not just working in technology, but also working in making batteries. And this is why we have Shanghai Giga that we announced and our Shanghai facility that has already been in Shanghai since 2019.
But today we also announced SES Korea, where we announce expansion plans where we are going to set up a pre-production facility as well. And expand in Korea also, along with Shanghai, and by the way, we headquarter in Boston because the company was founded out of MIT. Asia, for those who don’t know, Asia is the hub for battery manufacturing, for battery technology, for battery development and battery talent. So, we are one of the few battery technology companies that is not just based in the U.S., but we have also operations in Shanghai and now also in Korea. And we expand that as well, all three places. The Shanghai in particular, the Shanghai Giga that you’re referring to Mike, this Shanghai Giga, we announced at the same battery world event where we announced that this is going to be part of our expansion plan where we are, this is will be the first expansion that gets us to a giga factory. Up on until now we’ve had R&D factories as we speak.
Now we are working on pre-production factories, but the Shanghai Giga will be the first one that gets us to a giga factory and really helps us transition squarely into a product company from a technology company. So, we announced that Shanghai Giga, we’ve already leased a space. The work is already ongoing. In fact, like I said, we’ve been working Shanghai since 2019 and a lot of that would is going to be the expansion of the existing facility itself. All of this is going to help again, get this battery, this a hundred-amp hour battery, which we call Apollo. That’s a product name. We’ll help get Apollo into vehicles through the automotive development path and programs, because which is very arduous, very long, very consuming, requires a lot of resources and requires a lot of batteries to test in modules and packs and vehicles.
So, this facility is going to support working with many different automakers as we bring this Apollo into real vehicles. And from there on, you talked about expansion one, that’s a first expansion that gets into tens of gigawatt of hour, which means for every 10-gigawatt of hour, you can imagine, you know, that serves about a hundred thousand vehicle. So, if you were working with an automaker and they were making a hundred thousand vehicle, you’d need a 10-gigawatt hour factory, and this is what we are planning to do, which is to scale up as the demand scales up as well.
Julian Klymochko: And as your scaling, we do see other potential players emerging in the market. Specifically in your investor presentation, you mentioned peers Quantumscape and Solid Power. I was wondering how does, SES differentiate from these firms? And do you feel like you have a durable, competitive advantage in the marketplace?
Rohit Makharia: Yeah, we differentiate in almost or we are different in almost every single way. I mean, the first thing I mentioned already about us being a global company, but even if I just step back, we are really focused on making a cell that works, that can go into electric vehicle, that is our primary focus. We want to be really customer focused, product focus, and we want to bring a battery technology, which is advanced, which is the sort of the end game into electric vehicle. And we want to bring this technology in such a way that actually works. This is why it was so important for us to demonstrate that Apollo cell, because that showed to the world that we are not another technology company that is trying to do R&D that has aspirations to make a product like Apollo.
But in fact, we are working on it, and we are making it. So that was critical. That’s one of the biggest differentiations for SES that we have actually shown something practical that can go into electric vehicle. And this is again, back to our team, we are focused on R&D and manufacturing, and this is also really related to our technology. A lot of choices that we made goes back to the technology and why we can make these cells, these batteries. So, we don’t work on solid state. A lot of people assume that we work on solid state batteries, because that is one of the buzzwords in the industry. We work on Li-Metal and our technology does not use solid state. It uses liquid electrolyte, just like lithium-ion today.
The same process that has been scaled up to hundreds of Gigawatts of hour worth capacity. And this is just really massive scale. We can use a lot of same processes because we don’t use solid state. We use liquid electrolyte in our systems. So again, back to technology, our team, we can actually make the stuff and make it work and demonstrate. And we’ve been very transparent with our data. In fact, we’ve shown, we’ve sent our batteries to two third party test labs. We’ve published that data for everyone to see. And so that’s one big differentiation point, the other one. I would say that we are very focused on software. Battery industry and battery technology companies and battery companies that have also scaled up, have traditionally been focused on hardware.
And we can talk about software more in a few minutes, that’s another differentiation point for us, but, and then lastly, our partners, you know. I said earlier, we are working with General Motors, Hyundai, Honda. We have multiple automaker that we are working with. We also have investors such as Shanghai Auto, Geely that also owns Volvo, Foxccon, which is breaking into EVs in a big way. Equipment manufacturers like Applied Materials. Battery makers like SK, LG and investors. And we also investors like Tianqi Lithium, which is one of the biggest mining companies for lithium. So, we’ve also built a really strong roster of shareholders that span the full value chain downstream from customers all the way upstream to mining. And we have these great supporters that have supporting us for a long time and continue to do so. So that’s another big point of differentiation for us
Michael Kesslering: And on the partnership front and specifically with GM, Honda and Hyundai, obviously there’s the connection with GM, but could you provide a little, expand a little bit on the background of those partnerships and where you see those go going forward?
Rohit Makharia: Yes, absolutely. So, with GM, the company, you know, we’ve been working with them since 2015, a lot of R&D work, and they’ve been very supportive and back in early 2021, GM stepped up in a big way and committed to doing a joint development agreement with us for actually bringing this technology into EVs. And so, this JDA in our lingo, in the industry lingo called (A) Sample JDA, (A) Sample Proceeds (B) and (C) Sample, but this is what you have to do to get into EV, if you’re not doing an, (A) Sample JDA, you’re doing R&D milestone work. And so, if you’re doing an, (A) Sample JDA, which means there’s a line of sight to a vehicle, a vehicle platform, so GM stepped up in a big way. Just a few months later, Hyundai stepped up as well.
We had been working with Hyundai also for a couple of years and they also stepped up and then signed up for a joint development agreement, (A) Sample with us. And then more recently we announced in January that Honda as well stepped up and signed a, (A) sample, joined involvement agreement with us. And all of these three companies by the way, have made, you know, huge equity investments in the company as well, both in private rounds, as well as part of the SPAC and Pipe. So, really these relationships have been in the making for a long time. We worked with these automakers for a long time to earn their trust and really more than anything else, you know, they’ve seen our team and they’ve seen our technology and they want a piece of it. And so, the idea is to develop this and just as we talked about expansion plans earlier. Work with these auto makers to transition from (A) Sample to (B) Sample and then (C) Sample and then get this into a vehicle by 2025.
Julian Klymochko: Certainly, ambitious plans, Rohit, you mentioned SPAC and Pipe financing, which happened concurrently with merger with the SPAC. I wanted to touch on, you recently took the company public through merger with Ivanhoe Capital Acquisition. How was it working with Robert Friedland, and all so, how was this SPAC merger process?
Rohit Makharia: Yeah, it was great working with Robert. It was great. Robert is just a great person. And also, his SPAC just made so much sense for us, so much sense because we did talk to many other SPACs, but Roberts SPAC Ivanhoe was such a good fit because of Robert and his experience with the mining industry. Batteries need a lot of materials besides lithium the other two key materials are nickel and copper. And that’s where Robert has had a ton of experience mining these key materials that by the way, have been going up in price quite a bit for the last year. And with that experience, what we wanted to do was find a partner, which we found in Robert, who can help guide us through this process where we are not only making batteries, but really integrating ourselves all the way up stream to key materials.
And like I said, for lithium, we already had had investors that are working on lithium, but then with nickel and copper, we felt like this really, you know, this really rounded it off nicely for us. And the process for SPAC was, you know, just like any fundraise process, long and arduous, but also, we are just happy that we are on the other side of it. And really along the way, what we also found was a ton of new supporters. We had a fight that was oversubscribed. We went from 200 to 275 million. Honda came into a big way, they signed up the joint development agreement in January. And like I said before that we had General Motors, Hyundai, SAIC, LG, Coke Family, many other strategics that also participate in the Pipe. So that was fantastic to bring all these new supporters into the fold.
Julian Klymochko: One key aspect of the SES story. And it relates to the growing public transaction. You raised a bunch of capital with an oversubscribed Pipe financing, key juncture of the story is the revenue ramp up and the future path to profitability. Can you discuss how you guys are going to, you know, scale into revenue? Your still quite early age. Ultimately the plan is to become profitable in the future, with that, you know, what are some of the risks that investors should be aware of and how are you helping to mitigate those risks in the wrap up?
Rohit Makharia: Yeah, sure. And you’re actually right. Our revenue wrap up starts a few years down the road, and this really has to do with the fact that at automotive development takes time. What we have done is that we have sown the seeds for this development, with all of these different partnerships. We continue to work with other automaker as well. So, as we work with these automakers and go through the process of actually maturing the technology from (A) Sample to (B) Sample to (C) Sample, those milestones will be critical for the company and also for our customers. It’s really important that we keep on track, on time, as well as our technology matures, where we move from one gate to the next, so that we can get into production. So that’s really one of the key focus areas for the company along with mitigating that risk in ways, I said, we are working with other automaker as well, we haven’t made any announcements yet, but we’ll make such announcements when the times appropriate.
So that’s some risk mitigation on the customer side. Just continue to get more customers that are really interested in working with us through the funnel and get them down the funnel. The other piece is just execution on scaleup, we’ve announced the Shanghai Giga. We already started the Shanghai facility in 2019, and now we are working on getting that facility operational in the second half of 2023. So that as well, will be a key sort of milestone for us because that gets us now the capability to actually work in the big leagues. We will be able to manufacture enough of these Apollo cells to actually get into vehicles, even if it’s for integration and validation testing, we need this factory and others to work. And this is why expansion in Shanghai and Korea is also very important.
Julian Klymochko: The thing is with battery technology; it just moves so quickly. I’m sure you’ve seen that in your 20 years of experience in this segment of the market. I was wondering what sort of technological advance can we look forward to over the next 20 years? What can we expect from batteries in the future? What are you guys working on?
Rohit Makharia: I see, you know, new battery chemistries really only come once every few decades, lithium-ion started out back in the late nineties as a commercial product and we are still using it today. Look, you know, batteries, don’t follow Moore’s law, frankly, there have been five or six battery chemistries since the start of industrial revolution that have just played a key role in the industry. So, it’s really, really difficult, and to actually say what technology is going to be the technology of the future, there’s a lot of technology in play. There’s lithium sulfur, lithium air, our own Li-Metal that we are working with and by the way, can work with other lithium sulfur, lithium [Inaudible 00:28:44] as well. Some folks have may and announcements and are working on sodium-based batteries. So, there’s a lot of different chemistries that is at play, but again, I’m very skeptical of new chemistries, just like everyone else in the battery industry, because it’s really, really hard to bring new chemistry to bear commercially. The one thing though, the one trend that hasn’t really been talked about much in the battery industry, which I think will over the next two decades is software.
Julian Klymochko: Right.
Rohit Makharia: Traditionally all the next generation battery companies, all of the current battery companies that have already scaled up. The software is almost an afterthought or it’s almost you work on software out of necessity, that is changing fast. Through the whole value chain, especially in the battery industry. Software is going to be so critical. This is why, you know, if you’re not focused on software today, you’re not going to be able to compete 10, 15 years from now. I think that is going to be extremely difficult. Even if you have a great battery technology. Software comes really important because battery needs to be safe and battery needs to function in a variety of different kind of conditions, geographies, driving styles, et cetera. And, today, you know, battery treated like any other component in the car.
You sort of have an understanding of when it might fail based on, you know, your six-sigma manufacturing, but really what you want to be able to do is, have enough intelligence where you can understand how your battery’s performing in real time and be able to do some prognosis, just like a doctor would do on your health, on the battery health you want to be able to see or at least be able to perceive how the battery health is and how it’s going to be down the road so that you can take action to improve its health or not put customers in harm way. So, machine learning and AI is playing a big role in batteries. And really, you know, I talk about batteries, but it’s really the full value chain. When you think about new material discovery, a lot of AI is in play, even mining these days, a lot of AI is in place. So, software, I think, irrespective with the chemistry, irrespective with the battery technology. Software, I can say, at least for sure is going to play a massive role in the next 15, 10, 20 years.
Julian Klymochko: And I believe it was Marc Andreessen, who said, software is eating the world in battery. Technology seems no different. So, with that being, said Rohit, I’d like to thank you for coming on the show today. Exciting stuff happening at SES. Recently publicly listed under the ticker symbol SES. So nice and easy for investors or potential investors. So, wish you the best luck.
Rohit Makharia: Thank you. Thank you very much, Julian. Thanks Mike.
Julian Klymochko: Right. Take care. Bye everybody.
Thanks for tuning in to the Absolute Return Podcast. This episode was brought to you by Accelerate Financial Technologies. Accelerate, because performance matters. Find out more at www.AccelerateShares.com. The views expressed in this podcast to the personal views of the participants and do not reflect the views of Accelerate. No aspect of this podcast constitutes investment legal or tax advice. Opinions expressed in this podcast should not be viewed as a recommendation or solicitation of an offer to buy or sell any securities or investment strategies. The information and opinions in this podcast are based on current market conditions and may fluctuate and change in the future. No representation or warranty expressed or implied is made on behalf of Accelerate as to the accuracy or completeness of the information contained in this podcast. Accelerate does not accept any liability for any direct indirect or consequential loss or damage suffered by any person as a result relying on all or any part of this podcast and any liability is expressly disclaimed.
