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DATE
Nov. 10, 2026
CALL PARTICIPANTS
- Investor Relations - Brad Cray
- Co-Founder and Chief Executive Officer - Dr. Siyu Huang
- Chief Financial Officer - C. Wei
TAKEAWAYS
- Revenue -- $26,000, representing the company's first commercial revenue from aerospace cell deliveries ahead of the previously stated 2027 objective.
- Gross Loss -- $1.8 million, driven by a write-down of inventory built up to support anticipated near-term demand.
- Energy Density -- 450 watt-hours per kilogram, achieved in aerospace program cells by the third quarter and meeting the year-end target early.
- Automotive Energy Density -- 390 watt-hours per kilogram, demonstrated in A-samples delivered to Mercedes-Benz for system-level validation.
- Pilot Line Yield -- 85%, exceeding the 70% to 80% range typically targeted by state-of-the-art lithium-ion battery pilot lines.
- Cost Reduction -- 80% or higher, reflecting the decrease in cost per cell resulting from yield improvements on the pilot line over the last two years.
- Non-GAAP Operating Expenses -- $9 million for the quarter and $24 million year to date, primarily supporting research, development, and operating infrastructure.
- Non-GAAP Operating Expense Guidance -- $36 million to $38 million for full year 2026, lowered from the prior outlook of $40 million due to spending discipline and cost reclassifications.
- Capital Expenditure Guidance -- $10 million to $12 million for full year 2026, lowered from $13 million due to the anticipated timing of equipment payments.
- World Record Flight -- 521 minutes, achieved by a Group 1 drone powered by the company's lithium-metal cells, covering approximately 300 miles.
- DARPA LIFT Challenge -- 4-to-1 payload-to-weight ratio, demonstrated by a winning aircraft powered by the company's solid-state and lithium-metal cells.
- GAAP Net Income -- $8.8 million for the quarter, primarily reflecting a $24 million noncash gain from the change in fair value of warrant liabilities.
- GAAP Net Loss -- $11.1 million for the first nine months of 2026, including non-operating gains and operating expenses.
- Legal Judgment -- $4.1 million, representing a payment related to previously disclosed litigation that was excluded from non-GAAP results.
- Manufacturing Capacity -- 200 gigawatt-hours of global annual production capacity available through partner SK On, including 100 gigawatt-hours in the United States.
- Expansion Timeline -- 2027 for FAST line expansion and 2028 for Solstice line expansion, aimed at supporting high-specification aerospace and physical AI applications.
- Range Improvement -- 30% or more, demonstrated in strategic partnership tests with Tulip Tech using solid-state and lithium-metal batteries.
- Weight Reduction -- 20%, achieved in battery weight during customer tests prior to any additional engineering optimization.
- Intellectual Property -- 150 or more patents and patent applications, supporting the company's manufacturing and materials innovation.
- Inventory Value -- $1.8 million write-down, reflecting the difference between current manufacturing costs at low volumes and the anticipated selling price of the cells.
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RISKS
- CFO Wei warned that "revenue is expected to remain modest and to vary from quarter to quarter" until production programs ramp up in the coming years.
- CFO Wei stated, "The size of the write down largely reflects how much inventory we would built up," noting that early production costs currently exceed expected sales prices.
SUMMARY
Factorial Energy Inc. (NASDAQ:FAC) transitioned to a commercial-stage company in the third quarter of 2026, recording its first revenue from solid-state battery cell deliveries to the aerospace market. Management reported reaching an energy density of 450 watt-hours per kilogram for its aerospace cells, meeting its year-end performance target ahead of schedule while achieving a pilot line yield of 85%. The company is executing a fabless business model, forming strategic partnerships with manufacturers like SK On to leverage existing global production capacity for the automotive sector. Factorial revised its full-year spending and capital expenditure guidance downward, citing cost reclassifications and disciplined operational management as it prepares for meaningful revenue growth in 2027.
- Management is focusing on the drone and aerospace sectors due to faster adoption cycles and shifting regulatory requirements for domestic battery sources. CEO Huang stated, "The department of defense will restrict batteries from named FEOC, or foreign entities of concern."
- The company's FAST technology platform is designed to integrate into existing manufacturing infrastructure to minimize capital intensity. CEO Huang noted that the line "can reach up to 80% of the equipment in professional lab-in-a-line."
- Factorial is expanding its supply chain through a joint development agreement with Mitsui Kinzoku for sulfide solid electrolyte to scale the Solstice platform.
- Automotive milestones included the integration of solid-state batteries into a Dodge Charger Daytona development vehicle and a Peugeot RCZ concept car following world-record range tests with Mercedes-Benz.
- The company indicated that its lithium-metal cells offer a unique cost advantage over time because higher energy density is achieved by using a thinner anode, which requires less material.
- CFO Wei noted that the current gross loss reflects high fixed costs being spread over early-stage volumes and that labor productivity and material pricing are expected to improve as the company scales.
INDUSTRY GLOSSARY
- FEST: Factorial Electrolyte System Technology, the company's proprietary solid-state battery platform.
- FAST: Factorial's technology platform designed for high-specification applications, including aerospace, robotics, and high-performance vehicles.
- Solstice: The company's all-solid-state battery platform that contains no liquid components, designed for enhanced thermal stability.
- Wh/kg: Watt-hours per kilogram, a metric for energy density that measures how much energy a battery can store relative to its weight.
- FEOC: Foreign Entity of Concern, a government designation used to restrict certain foreign suppliers from participating in the U.S. defense and technology supply chain.
- GWh: Gigawatt-hour, a unit of energy equal to one billion watt-hours, used to describe the production capacity of large-scale battery factories.
Full Conference Call Transcript
Operator: Greetings, and welcome to Factorial's Third Quarter 26 Results Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce Brad Cray, Investor Relations. Thank you. You may begin.
Analyst: Thank you, and good afternoon. With me today are Dr. Siyu Huang, Co Founder and Chief Executive Officer; and C. Wei, Chief financial officer. Earlier today, we published our third quarter shareholder letter on the Investors section of our website at ir.factorialenergy.com. The company uses its website to disclose material nonpublic information and to comply with its disclosure obligations under SEC Regulation FD. We encourage investors to monitor the site and sign up for email alerts. Today's discussion contains forward looking statements within the meaning of applicable security laws including statements regarding industry trends, our 2026 outlook the timing and amount of commercial revenue, manufacturing plans, partnerships, technology development, business plans, and milestones. Actual results may differ materially.
Please review the risk factors described in our quarterly report on Form 10 Q for the quarter ended 09/30/2026 filed today. And in our other filings with the SEC. Factorial disclaims any obligation to update forward looking statements except as required by law. During this call, we will refer to non GAAP operating expenses, a financial measure that is not prepared in accordance with generally accepted accounting principles. We define non GAAP operating expenses as total operating expenses excluding depreciation and amortization, stock based compensation, the previously disclosed legal judgment, and for 2025. the loss and impairment on lease termination, all of which are reconciled in our shareholder letter.
Beginning this quarter, non GAAP operating expenses no longer exclude noncash lease expense. Management uses this measure to plan and evaluate the ongoing cost of operating the business. It has limitations, should not be considered in isolation, may not be comparable to similarly titled measures used by other companies, and is not a substitute for the most directly comparable GAAP measure. A reconciliation to GAAP operating expenses is included in our shareholder letter. With that, I will now turn the call over to Siyu.
Siyu Huang: Thank you, and good afternoon, everyone. Factorial's first quarter as a public company delivered a moment years in the making. We recorded our first strong customer revenue while ahead of the 2027 timeline we set. We are now supplying cells that power real products for paying customers. In just a few months, Aerospace took us from sampling to system integration, to a world record to commercial order and recognized revenue. This speed was built on years of development work. With our automotive partners. We have proven our path: partnership, system level validation, and then order. Aerospace is the first proof point and automotive is next. With a longer runway, and a far greater opportunity.
We have always planned to go market- by market. Starting where customers pay for performance and make decisions quickly. Right now, that is drones and aerospace. We also see few large battery makers competing for drone batteries today. And suppliers from FEOC, which is foreign entities of concern, face growing restrictions in the U.S. That leaves room for a new supplier. Our first revenue came from the aerospace order we announced in July from a leading U.S. drone maker. We began delivering cells under that order this quarter. A test flight shows what a cell can do A purchase order shows what it is worth to a customer.
In July, we formed a strategic partnership with Tulip Tech following customer tests that showed more than 30% longer range with our solid state and lithium metal batteries. In part due to a 20% reduction in battery weight before any engineering optimization. Also in July, a drone built by Titan Dynamics and powered by our lithium-metal cells set a world record for fluctuation in Group 1 drones. The lightest drone group up to 20 pounds at a Game of Drones, passing 'bands' at Edwards Air Force Base in California, with 521 minutes in the air covering roughly 300 miles.
In August, our solid state and lithium metal cells powered the winning aircraft in a DARPA LIFT challenge which carried a payload of nearly 4x its own weight. For drone makers, battery performance is 1 of the fastest levers to better mission capability. These results give customers independent, real world proof that our solid-state delivers as they move from testing towards production. From here, we expect revenue to grow in 3 ways. The first is more customers. We are working to qualify our aerospace products with additional customers starting in October 2027 The department of defense will restrict batteries from named FEOC, or foreign entities of concern.
For manufacturers, qualifying a new cell maker takes months, so drone makers are picking their suppliers now. Our U.S. headquarters and our fabrication in United States and South Korea aligned with that shift. The second is better cells. In a drone, energy density decides how far it flies and how much it carries. Last quarter, we said we expected our dual program sales to move towards approximately 450 watt-hours per kilogram by year- end We have achieved 450 watt-hours per kilogram as of today. About 15% higher energy density than the cells that powered our world record flight this year. We continue to target further improvement next year.
That work builds on the A-samples we delivered to Mercedes Benz, which came in at about 390 watt-hours per kilogram. It shows how much synergy our automotive program brings to our high-power applications. The next job is to carry those gains from development cells into production cells. At consistent quality, because that is what turns the performance lead into orders. Independent testing including nail penetration, crush, and thermal tests has confirmed the safety of the FAST cells we have delivered. Solstice is our all solid state battery platform with no liquid inside. We have built those cells as large as 40-amp-hour, and deliver them to partners for validation. Separate from the drone program.
Targeted, is designed for up to 450 watt-hours per kilogram, and its enhanced thermal stability when compared to conventional lithium ion battery cells, that makes it a fit for robotics, space systems, and other users that need longer cycle life and high thermal stability. The third is automotive. A much bigger market that moves on a longer timeline. It follows the same path as aerospace: partnership, system- level integration, and then a commercial order. Over the years, our work there has grown from 1 vehicle to several, across brands and regions. Mercedes Benz put our results on public roads in 2025. Built them into a Dodge Charger Daytona development vehicle this year.
And right after quarter end, Show the Pujo RCZ version concept car. A solid state battery developed together with Factorio. Our next major milestone in automotive is a production uptake agreement with a mainstream automaker. Building on the supercar order we received in January. An agreement would set us up to ramp towards volume production by the end of the decade. This is how we are different. Partnership system level integration, to commercial order. Each step takes years of effort. Many companies have technologies on paper, in a lab,, but having a claim on a performance is different from having announcements of partnerships with leading customers with substantial investment and support over the years.
Having just partnership is different from having those partners building the vehicles on the ground and in the air. Not only functioning but set the world record. Having those system integration for an innovative product is different from having a commercial order. We are not just living on a promise but the track record. We shared that we will have the first revenue by 2027, and we delivered in Q3 26. Today, we built cells on our pilot line in South Korea, and at our headquarters near Boston. Those lines have shipped thousands of large format cells to automakers for testing, and our lines in Korea can switch between the lithium-metal and silicon versions of FAST.
Next, we are expanding our own lines for FAST by end of 2027 and Solstice by end of 28. The new FAST line is being designed to make commercial cells build to the performance requirements of aerospace and physical AI applications. Then, we plan to scale through partners. We designed FAST so that a line can reach up to 80% of the equipment in professional lab-in-a-line. That lets us grow through our partners' existing factories rather than new ones. It also avoids much of the cost in the environmental impact of our new construction.
In July, SK On, 1 of Korea's leading global battery manufacturers, signed a memorandum of understanding with us to jointly evaluate producing our battery technologies across its global manufacturing network. SKON is our second significant industrialization partner this year, which is major progress towards our fab-less business model. It has more than 200 gigawatt-hours of annual production capacity worldwide, including about 100 gigawatt-hours in the United States. On the supply chain side, in September, we signed a joint development agreement with Mitsui Kinzoku, a leading manufacturer of sulfide solid electrolyte. To help industrialize Solstice. Its solid electrolyte is advancing towards mass production, at a dedicated plant in Saitama, Japan.
This builds on our partnership with Possible Future Anne a leading cathode and anode materials provider in Korea. With Mitsui Kinzoku joining POSCO FUTURE M, we now have partners for all 3 key active materials of Solstice, which position us to move solstice to scale. We are also working with Phil Energy, a leading Korean maker of battery stacking and assembly equipment and 1 of our investors to build out the manufacturing infrastructure for Solstice. Our partnership coalition led by Factorio is designed to match the scale of today's largest cell makers through a fabless model. We believe the market will divide into designers and contract manufacturers.
Our innovation extends beyond materials and technology to engineering, and we bring that expertise to our partners. line to raise yield and quality. Partners can supply us with manufacturing capacity, The know how to make solid state battery work reliably at scale is hard to come by. And that is what we bring: more than 150 patents and patent applications. On cost, our work covers manufacturing, materials, and the supply chain. In manufacturing, yield has a large effect. Because every scrapped cell adds to the cost of the good ones. When we began production of our first technology, yield was low.
Our power line has since demonstrated yield about 85%, Compared with the 70% to 80% that state- of the art lithium-ion battery pilot lines typically target. With everything else held equal, that improvement has cut the cost of every battery cell by more than 80%. Solstice's dry cathode process, also uses less energy and avoids the volatile organic compounds that come with solvent based processing. In materials, our lithium metal cells follow a different cost curve from silicon anode cells. With silicon anodes, more energy density takes more silicon. And the cell gets more expensive. With lithium metal, more energy density comes from a thinner anode, which means less material.
Over time, we believe that can make our lithium-metal cells less expensive than silicon anode cells. And because neither platform needs rare earth metals, we believe our cell cost can approach that of lithium ion and become competitive as volume and our supply chain grow. In the near term, we are focused on holding yield as volumes rise, qualifying our drone products with more customers, and moving Solstice towards industrialization, with POSCO future m. it is taking a call now, Phil Energy, and our manufacturing partners. For now, we see significant opportunities in physical AI, automotive, and energy storage. With that, C. Wei will take you through the numbers and our outlook.
C. Wei: Thank you, Siyu. And good afternoon, everyone. Our revenue milestone in the quarter represents an early step toward a much larger opportunity. The full detail is in the letter so I will focus on how this business is built to grow and how we plan to generate attractive returns from that growth. The opportunity ahead of us is enormous. The IEA and McKinsey project that overall battery demand will grow significantly by 2030 to several terawatt hours. At gigafactory scale, we are geared to grow with that demand through our industrialization partners' capacity in the high specification market we are expanding with a mix of our own capacity and our partners.
To serve our first customers we are expanding FAST by the end of 2027 and Solstice by the end of 28 Further on track, revenue follows the same logic. In high spec markets, such as aerospace, robotics, and supercars. We sell finished cells supply from our own lines within our current capital plan. And supplemented by contract manufacturer sales where appropriate. In automotive, the much larger market we expect our industrialization partners to contribute install manufacturing capacity and we see 2 ways to earn revenue from it: contract manufacturing and joint manufacturing. In contract manufacturing, partners manufacture cells we designed under contract and we earn revenue on those sales. In joint manufacturing, partners license our technology and make cells themselves.
Licensing generates less revenue per cell than contract manufacturing sales, but we expect it to carry higher margins and require little of our own capital. Separately, we expect to earn revenue from supplying key materials and from engineering services. The third quarter is a starting point Revenue was approximately $26,000 from our first shipments under the aerospace order we announced in July. Gross loss was $1.8 million Nearly all of it came from a write down of inventory. During the quarter, we build up inventory ahead of orders to support near term demand. Those sales are on hand and available to sell At these early volumes, our fixed costs are spread over relatively few cells and material prices are higher.
So each cell costs more than we expect to sell it for. We carry the cells at what we expect to receive, when we sell them and record the difference as a cost. The size of the write down largely reflects how much inventory we would built up. As production scales, we expect higher labor productivity, overhead spread across more units. And lower material prices to bring unit cost down. Providing a highly compelling value proposition when compared to lithium ion batteries. Non GAAP operating expenses were 9 million for the quarter, and $24 million year to date mostly for research and development. Sales and marketing, and the operating infrastructure behind the milestones Steve described.
Non GAAP operating expenses also exclude $4.1 million related to the legal judgments we previously disclosed. GAAP net income was $8.8 million this quarter that came primarily from a change in fair value of warrant liability of $24 million, a noncash gain which moves with our share price. Our 9 month GAAP net loss was $11.1 million. We now expect full year 2026 non GAAP operating expenses of $36 million to $38 million below our prior outlook of approximately $40 million. The lower range reflects continuous spending discipline and in part, production costs that are now recorded in inventory and cost of revenues instead of operating expenses.
The range implies higher spending in the fourth quarter as the timing of some costs shifted into that period. We expect full year capital expenditures of $10 million to $12 million compared with our prior outlook of approximately $13 million. Mainly reflecting the anticipated timing of milestone based equipment payments Some of which may move into early 2027. We expect more meaningful commercial revenue in 2027 as production programs begin. Until those programs ramp, revenue is expected to remain modest and to vary from quarter to quarter. We have reached our energy density target of approximately 450 watt-hours per kilogram in our aerospace program cells.
And we expect to keep spending within our outlook and complete both line expansions on schedule. We believe our balance sheet disciplined operating model, and capitalized manufacturing approach give us the runway to carry out our value creation plan. With that, back to you, Siyu.
Siyu Huang: Thank you, Richard. When we founded Factorial, we believe that the world would need fundamentally better batteries. This quarter, a customer paid us for cells for the fourth time. And we moved forward on each of the 4 priorities we stated in June. These are early steps in building the energy layer The battery infrastructure we believe will underpin the next era of aerospace, mobility,, and physical intelligence. Our strategy has not changed. We improved our technology, first in high- spec markets such as aerospace, where performance matters and customers adopt quickly.
Then carry that proof into mainstream vehicles and a wider mobility market towards the end of the decade. there is a lot left to do, and this team is ready for it. Operator, we are ready for questions.
Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. 1 moment, please, while we poll for questions. Our first question is from Derek Soderbergh with Cantor Fitzgerald. Please proceed with your question.
Derek Soderbergh: Yes. Hey, everyone. Congrats on the technical achievements. As well as the commercial revenue. I am curious if you can quantify the level of firm orders and repeat demand you guys see for 2027? And similarly, can you talk about maybe which qualification milestones in the near term might accelerate that demand on 2027? And then I have got a couple of follow ups.
Siyu Huang: Yes. Thank you so much, Derek. Again, thank you so much for being here today. For. In terms of the revenue that we have not disclosed the 2027 guidance yet, but we do see that as we ramp, and as we get this initial order, we are expecting to receive more meaningful revenue as we scale. And I think we are in our first customer. First few customer qualification process right now. We are potentially expanding to the next 10 customer qualification process. We are under active testing with multiple of them as well. And I think we are anticipating that the customers will be moving faster and faster, and this is actually also surprising to us.
And actually, this customer moved faster than what we expected, and that is why we were able to break our first revenue ahead of our 2027 time line. And to your second question, about qualification, I would say aerospace is our first 1 here and we have. Just being in this market, like, over the last few months since our equity investment, that we also had our first partnership announcement to the first demonstration with system integration and validation, to our commercial order. And we see that now we have to replicate the same process. With other customers and even with bigger customers in aerospace market.
On top of that, I would say the holy grail is really in the automotive space. And that is what we see we will likely follow the similar pattern As you know, we had our first partnership announcement back in 2021 with Hyundai-Kia, followed by investment with Mercedes, so the initial formation of the partnership coalition And recently, we also had additional OEM, release with the partnership as well. But I think what was most exciting in that journey is that we also built 1 of the world's first solid state battery vehicle with Mercedes last year. And it took on this record drive with 1220 kilometers with a single charge.
And this really speaks to the value as we come to the system level validation. We see that is gonna be the next step to really focus on to bring this to a commercial order in the near future with automotive partners.
Derek Soderbergh: Got it. Super helpful. And I also wanted to touch on manufacturing yield. So your pilot line is at 85% or above. I was wondering if you could maybe talk about the pace of improvement there that you have experienced and when we might be able to get to kind of that 95% plus that the industry targets. So just on that, was wondering if you could touch on that. And then I was curious if that 85% yield number, is that end to end yield for cells produced?
Siyu Huang: Yes. So our line in Korea, right now, with the capability of doing FAST, is at roughly about 85% yield over the course of last 2 years as we ramped up. And actually, the yield was really low. was way below that. And as you may know, this industry very well, that yield is really important for the cost. A line with 20% yield is roughly about 4x of the cost of a yield of 80%. And the typical lithium ion battery power line will run about 70% to 80% yield. And for our system, that we have already got to 85% yield, which is state of art. And here, we are talking actually about assembly and formation.
Only it does not include the coding process. But includes the IQC, the incoming qualification process for coding. Already. And I think for the Gigafactory, you will typically expect to be at least 95% or above. But with a pilot line of 85%-plus yield, you are on a good path to get the system, like, the factory level. Efficiency.
Derek Soderbergh: Got it. Got it. Super helpful. Appreciate the detail. And then finally, just on 450 watt hour per kilogram, achievement. Can you talk about some of the other I guess, I call them trade offs, you know, just on cycle life discharge power. You would mentioned know, some testing in the. In, you know, various temperatures and things like that. What sort of cycle life discharge power do you get with this level of density? And maybe talk about some of the applications that you guys are uniquely suited to go after there is there is really not you know, other technology like this. So just wanted to hear your thoughts on that. Thanks.
Siyu Huang: Yes. that is definitely a very discerning question. Apparently for battery industry, it is all about a balancing act. it is all about the trade off. And for our product that for this specific product that recently set the world record, We focused the development from that cell into even higher energy and higher power cell. The initial cell, we literally brought it from the automotive world after 10 years of development. We just had a smaller format from, like, the Mercedes vehicle cell, but with a similar chemistry. And put it on the drone and flew and got a record. And, however, for this new system, we are targeting to really focus on range and power.
Does that what really matters for the drone industry and for the aerospace? That we are targeting in the near term. A lot of them, they do not really require many cycles. And, I mean, it is not really long cycles that you are looking at for those specific applications. And that is why we have, deemphasized the cycle life requirements and, which is apparent and much smaller than automotive. Environment. But the discharging capabilities or the power capabilities could be 5 to 10x as high as what is required for, the automotive industry. So this is where we have never seen before. But a lithium-metal cell has actually a very unique advantage on that.
Because for lithium ion, especially silicon and graphite lithium ion batteries, you will have a natural compromise between energy and power. Usually, energy cells cannot deliver a high power, and a high power cell will have very limited energy. And when you try to push both, the cost can become a big issue even you are getting remotely close. So that is why we think that for this technology, it will be able to get to the energy density much more quickly because lithium metal is literally the lightest metal on Earth right now. And at the same time, you can push for high power. Without the traditional physical limits. That the lithium ion battery are having.
Derek Soderbergh: Super helpful. Really appreciate it.
Siyu Huang: Yep. Thank you, Derek.
Operator: Our next question is from Colin Rusch with Oppenheimer. Please proceed with your question.
Colin Rusch: Thanks so much guys and congratulations on hitting the first revenue. You know, I appreciate the detail on getting to the 450, Y hours per kilo. And but I wanna get a better sense of how much you know, or what other advantages you might have at the pack level, given the chemistry and some of the performance, metrics that you guys are able to deliver. So just wanna get a sense of that relative to some of other chemistries out there.
Siyu Huang: Yes. that is a great follow-up question to Derek's earlier question. Actually, there was 1 thing I forgot to mention is about the temperature, and this is very relevant to your question, Colin. On the pack level. And I think pack level lithium metal, we also see a great thermal stability and also conductivity compared with silicon. And we are happy to share with you more details in a more deep dive technical discussion. But in a high-content silicon pack, usually, you will see a lot of heat generation at high power. Level. And for lithium metal, you do not see that because lithium, in general, is a much better heat transferrer compared with silicon.
And that is why we think that, I would say, having high energy high power without generating too much heat is definitely 1 advantage you can see at the pack level. And on top of that, there is very similar integration effort needed for lithium metal compared with silicon. But I would say there is a potential cost reduction that is required for the system. And this is not only just for aerospace, but also for automotive as well. So if we have a lighter cell and you need very much similar. to. In terms of integration for the drone, for example.
And it can reduce the weight of the drone, and it can reduce the overall cost for the system. And for automotive, it is another different story. No matter if it is lithium-metal or if it is silicon, if you can reduce the total weight of the vehicle, you can roughly reduce about for every pound you are saving, it is roughly about $5 of savings. According to our customer's feedback. And this matters a lot when you are not only just reduce the weight of the battery, itself, but also the supporting structure, like the steel and aluminum.
And another important findings that we had recently is even about the power capability because the lighter system you might be able to have even better power. For example, we had some recent discussion with, like, motorcycle companies, and they even shared that typically, they will require very high power discharge. But when you have a lighter system, you do not even have to have extraordinary high power compared with traditional vehicles. So I think the lighter can. Lighter vehicles can also lead up to a much higher power and longer distance. Performance.
Colin Rusch: Excellent. that is super helpful. And then, as you get into, you know, proper commercialization here, with customers, can you talk about the customer strategy and the sequencing here? I mean, you are targeting a handful of different applications and different size orders. And, certainly, the commentary around automotive sales cycle and design cycle is well you know, I think well understood, you know. But I wanna think about how many customers you are working with on that, how those folks move through the sales, pipeline into this. The production ramp as you get into this in a little bit more robust way next year?
Siyu Huang: Yes. You know, we have been long-term, a true a true believer of starting with small and small market, but with nimble and faster adoption of new technologies. And that is why we defined this aerospace and physical AI and all this high performance market as high spec market even backing 2020 and early stage of the company during COVID time, was a name that we initially defined ourselves as high spec market. And as part of this ramp up, we believe that in the near term, in the intermediate term, automotive will be a real market for us to tap into.
It does have a commercial demand, and automakers are willing to spend a lot of capital, especially in early days to support all of this development. And, also, surprisingly, they were very supportive for us to get into the high spec market to be with. They say this is a strong validation. of what they are trying to do especially with a cell chemistry that is almost the same as what they are developing As of today. So in terms of pipeline, in our drone and aerospace markets, we see that this is a much more fragmented market. Not like automotive. Right? If you grab the top 5 automakers, they probably 50% of the market already.
But for drones, it is much more fragmented. So I think we are gonna first of all, find a few key customers or the key opinion leaders in the market and crack the code. Right? that is what we are starting to build first, and that is why we are working with this U.S. leading drone maker to build that initial success. And then we will launch with volume. Because this is always commercial ready and we are scaling with volume. And I think this process we see typically takes anywhere between, like, 9 months to a year to get to fruition. And. But I think it is gonna be much faster than automotive.
And when it comes to automotive qualifications, it is also going to experience the same process which is this 3-step process Number 1, partnership. Formation. number 2 is system integration. And then the number 3 is commercial order. It is a much longer journey but has much bigger potential in that market. I think we have been enjoying 1 of the vast advantage amounts other solid state players in The US that with Mercedes,, Hyundai, Kia, they are already more than 25% of the global market outside of China. And we also just onboarded a new JDA partner and that is from Europe as well.
And I think we are looking at a very significant part of the automotive market even up to, like, 30% to 40%. So this is something we think we have a great pipeline today. And we also have done vehicles across 2 continents in The US and in Europe. We launched the first European solid state battery vehicle last year with the record drive. And, also, we launched the first vehicle in American soil with Stellantis this year. So. And then we had another recent announcement with Stellantis about Pujo So I think all 3 vehicles are really good starting point about the validation, which is a big stage.
We see, is very important for them to have a tangible moments to say, oh, that actually works. And then I think we have to move towards the final stage of uptake. And that is where the fun things will start with all the manufacturing, and partnership. And I think the recent announcements with SK On in this quarter is also very important. This is the second joint manufacturing partner we have announced this year. And this definitely paved the way for the manufacturing capabilities with more than 200 gigawatt hour globally in both the U.S. and Europe.
And I think the next stage is really to focus on the manufacturing and reduce the cost for manufacturing. that is where the supply chain partnership matters a lot. that is why we had been taking the call as 1 of the most reputable solid state electrolyte suppliers in the world. Join the partnership with POSCO FUTURE M and Phil Energy earlier this year to help us scale the solid state. All solid state battery manufacturing. Yeah. So I think it is a really strong pipeline for us both the aerospace and automotive markets. And we are 1 of the very few companies actually have strong partnership in both markets in the U.S.
Colin Rusch: Great. Thanks so much, you guys.
Siyu Huang: Yeah. Thank you, Colin.
Operator: Press 1 on your telephone keypad. Our next question is from Mark Schuster with William Blair. Please proceed with your question.
Mark Schuster: Hi, Siyu and C. Wei, and congrats on the quarter. We appreciate that capital business model that you talked about in the shareholder letter. And regarding your relationship with SK On, can you give us a little color on what shape do you expect this to take Is this a licensing deal or a joint venture? Or maybe just straight contract manufacturing? And is this more focused on drones or EVs?
Siyu Huang: that is a brilliant question. Definitely, we are a big fan of the fab-less business model because we know this industry is bifurcating into the 2 segments 1 is for auto designer and the other 1 is auto contract manufacturer. We know that it is going to be very important to focus on the design especially the competition of the battery industry so fierce at this moment. And when we see that for our automotive market, there are 2 main ways of doing this manufacturing with partners. 1 is called contract manufacturing, which we recognize other revenue, and we work with our contract manufacturer to produce cell, which is something very similar to some of the semiconductor business.
And the other way is we call it joint manufacturing. it is a combination of licensing on top of material supply and manufacturing engineering services. And this is really tailored for certain customers and certain manufacturing partners that have strong relationships with OEMs. Sometimes they are the daughter company, their wholly owned subsidiaries. I guess you can guess who they are out there. And those are really the ones that were basically joint manufacturing with OES. Right? So that is where we think there is a fairly strong case that we can build a licensing model.
And when it comes to our own manufacturing, when it comes to the high- spec market, such as for aerospace, we say that it is a combination of our own manufacturing and contract manufacturing. First of all, the speed for this market is much faster. They do not have much patience to wait for 3 or 4 years to fill the line. But with. They would rather just to pick up their packing a week ago. that is the speed of this market. So I think with our own capabilities in Korea and in the U.S., we do have some volume already. We are expanding those capabilities as Richard just shared earlier in 2027.
And for the FAST product and 2028 for solstice. And I think for that market, we will start with our own manufacturing because also the cost the capital to put into those build out is relatively small, too. So we could relatively turnaround manufacturing production line much faster. With relatively small capital and be able to ramp up in commercial order very quickly. But then the question is, like, do we have to do this forever? And my answer is, apparently, no. And if there is opportunity to leverage partners, to build contract manufacturing capabilities, that would be definitely preferred. If we can use other people's money, why not?
And this is we are also waiting for our contract manufacturers, because a lot of them they do not want to be a cell maker or they do not really have the technology to be the cell maker. So I think being able to leverage this and give them significant revenue, at the same time, for us to be able to ramp up our revenue without putting substantial capital would definitely be a preferred way in the long term.
Mark Schuster: Thanks, Siyu. That. that is really helpful. And to dig in a little bit more on that fabless business model, being able to easily convert lines for a manufacturing or the joint manufacturing. You know, that would be key. that is why we have seen such strong success with silicon because there is that drop in replacement for graphite. The FAST system is flexible, where you can either use silicon or it can be tailored for lithium as well, or lithium-metal, I mean.
With lithium metal requiring a bit more development in that commercial scale equipment, Can you give us some color on the differences between scaling those 2, whether if you are looking at silicon anode versus lithium metal, either anode less or not? And does that impact what chemisty you will commercialize first? And are the partners skewing 1 way or the other?
Siyu Huang: Absolutely. You are definitely the chemistry, the chemist in the room. Very pretty much appreciate the. This question mark. I think, yes, there is a difference for the silicon versus lithium metal. And even in our system, our existing FAT system, with the lithium metal, we have up to 80% compatibility with traditional lithium ion battery line. As silicon potentially can have even more compatibility, which I think is much, is even better when it comes to contract manufacturing. We have not yet disclosed about our line expansion plan in detail.
I would say for those 2 system, to some extent, I think as long as we manage the raw material, to be compatible, there is a potential to have still, like, 80% compatibility. And 1 thing I do also to. Wanted to mention is that I think it was Derek asked a question earlier. From the cell manufacturing, there are 3 steps, right? Coding, assembly, formation. And yes, lithium does have a little bit of a difference in the assembly. But the coding and formation are pretty much the same. You can use same equipments. So I think that is something where and I would say there are also.
Of course, as you know, like, there are different type of liquid metal technology too. But in the end, I think, First, the coating, which is 1 of the most expensive part of the manufacturing should be quite commoditized, and we could leverage it. For our existing manufacturing capabilities. And I am sure we will release more details as we are moving along the next few weeks into the next quarter. And I think there is even higher capability for the ramp up. And I think for our aerospace market, we are likely going to be focused more on the lithium metals technology to begin with because that is really the holy grail.
And in the automotive market, I think we see a combination of interest of both. So I would say, like, even between fast and solstice, there is interest for both like, silicon and lithium metal and other chemistries. And since we have not shared in more detail, it is roughly about half and half in terms of our customer interest at this moment.
Mark Schuster: that is very helpful. Thanks, Siyu. Just 1 more if I can fit it in. Just touching that last point, the demand for non-FEOC compliant sales, especially in the drone market, is high. And there is a timing component where a cell today is very important, and the performance of that cell may not even need to be off benchmark. it is just because the availability of supply is so low. I am wondering if there is a trade off or optimization of okay, I can make silicon cells faster and easier today, but, you know, they are not as good as performance of the lithium metal or annulus or solid state.
But customers prefer cells today versus waiting 2 years. Have you seen anything like that in your engagement? With, customers?
Siyu Huang: Mhmm. Mhmm. Yes. that is a great question. I think, actually, I do not see much difference between the time to market for the non-FEOC supply chain for either silicon or lithium metal. For us, specifically, because we have this. 1 of the strongest partnership coalition, with POSCO FUTURE M, which is 1 of the largest material maker in Korea, and they are also the only 1 producing both cathode and anode materials. And also a few other partners such as LG Chem over the years and even Sungeo High-tech on the recycling side. So I think we do have a really strong position in having access to 1 of the most advanced material supply chain. Globally.
And that is why. And we also have the. We have been focused on innovating products ourselves internally. So this gave us almost the same time in developing NDAA compliant cell for silicon versus for lithium metal. And I think I know what you are asking here is more for a lithium-metal supply chain. We do have a solution for that, and I will be able to share with you, hopefully, by the end of next quarter.
Mark Schuster: Great. Thank you very much.
Siyu Huang: Thank you.
Operator: Our next question is from Eric Goldstein with Water Tower Research. Please proceed with your question.
Eric Goldstein: Hey, good afternoon, guys, and congrats on all the accomplishments this quarter. I just had a couple of other questions. You put together a, you know, pretty impressive list of partners. I was just wondering how do you manage all the partners? Do you have employees that are colocated at their facilities? Are they colocated in your facilities? And where it makes sense, are you able to share advancements that are made with your partners across your entire ecosystem?
Siyu Huang: that is a great question, Eric. Thanks for dialing in today. Yes. So for. You know, our partnerships, especially with our customers and suppliers have been growing constantly over the course of last few years. With, you know, Mercedes de Lantus in early days and Hyundai-Kia and even with VW's recent onboarding. it is definitely really strong coalition together But I think we have had a very clear firewall on the technology and our trade secrets internally with our partners. And I think I would say all of our partners have been very respectful. For our technology too. So we have not really had have to have the partner to come in.
Of course, when it comes to say, automotive uptake, you will be a different You will have quality people getting to your room. That will be a different story. But I think at this stage and also with our drone customers, they are pretty hands off at this moment. And what we also realize that usually when you have big OEMs or drone customers sitting in a room before you receive uptake, that means that something's going wrong. So I think we. Fortunately, we do not have that issue. But I think we do have very close collaborations with our automotive partners.
We actually had multiple interviews and even co presentations in conferences, in press releases together, And I think a lot of people did not realize how closely the relationship is held it with each other. And, you know, from the earlier this year, we announced the 3 partners across 3 continents with KULR in the US, that is a NYSE publicly listed company for drone and aerospace integration with Tulip. As you know from the name, it is from Netherlands and JR from Korea. So those 3 companies across 3 continents.
And just over the course of last few months with the world record, and we set with the Game of Drones event and even with partners with the LIFT challenge and all these different competitions. And those partners have helped a lot in this process. So we sometimes, do visit their facility. And they also visit us. But I think it is a very friendly conversation, and then we also keep a little bit healthy distance with each other.
Eric Goldstein: Okay. Great. Just a couple others. The SKON, m u. MOU? Are there any milestones to that would turn that into a definitive agreement?
Siyu Huang: Yes. We actually have a lot of milestones within MOU. Apparently, like, we do not have authority to disclose it as of today.
Eric Goldstein: Okay.
Siyu Huang: But I would say just from my perspective, from the company's perspective, our next big milestone is really the uptake from OEM. I think that is really the 1 that we are looking into to build beyond those nitty gritty small detailed milestones that we signed in an MOU. I think that is gonna be a big driver to bring everything together.
Eric Goldstein: Okay. And then just 1 for Richard. It looks like the cash burn in the third quarter was a little higher than what it had been in the first half of the year. I am just wondering how you are thinking about the fourth quarter Do you expect cash usage in the fourth quarter to be similar to the third quarter?
C. Wei: I provided guidance for the full year. About 36 to 38 range. that is on a non GAAP basis. I think you could deduce what the Q4 number should be based on that. We will continue to do inventory.
Eric Goldstein: Okay. And then just the last 1, the $4 million legal judgment, was that paid out in the third quarter?
C. Wei: That was paid out in the fourth quarter.
Eric Goldstein: In fourth quarter? Okay.
C. Wei: Yep.
Eric Goldstein: Thank you.
Operator: We have reached the end of the question and answer session. I would like to turn the floor back over to Siyu Huang for closing comments.
Siyu Huang: Thank you all for joining us today and for your thoughtful questions. It means a great deal to me and to our team to share this journey with you. We look forward to updating you next quarter in the New Year. If I do not see you before the New Year, happy holidays. And we are grateful for your continued support of Factorial. Thank you.
Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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