SES AI Corp

Previous wording

The following discussion and analysis provides information which our management believes is relevant to an assessment and understanding of our consolidated results of operations and financial condition. The following discussion and analysis should be read in conjunction with the accompanying unaudited interim condensed consolidated financial statements as of and for the three months ended March 31, 2024 and the related notes included in this Quarterly Report on Form 10-Q and our audited consolidated financial statements as of and for the year endedDecember 31, 2023 and the related notes contained in the Company’s Annual Report on Form 10-K filed with the SEC on February 27, 2024 (the “2023 Annual Report”). This Quarterly Report on Form 10-Q includes forward-looking statements. These forward-looking statements within the meaning of the federal securities law are based on our current expectations and beliefs concerning future developments and their potential effects on us. These forward-looking statements are not statements of historical fact and may include statements regarding possible or assumed future results of operations. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. Factors that might cause or contribute to such forward-looking statements include, but are not limited to, those set forth in Part II, Item 1A of this Quarterly Report on Form 10-Q and in Item 1A. Risk Factors in the 2023 Annual Report. Unless the context otherwise requires, references in this section to “the Company,” “we,” “us” and “our” refer to the business and operations of SES Holdings Pte. Ltd. (“Old SES”) and its consolidated subsidiaries prior to the Business Combination and to SES AI Corporation and its consolidated subsidiaries following the Closing. References in this section to our future plans that indicate the timing of when we expect such plans to be completed by a certain year mean at any point during that year.

Current wording

The following discussion and analysis provides information which our management believes is relevant to an assessment and understanding of our consolidated results of operations and financial condition. The following discussion and analysis should be read in conjunction with the accompanying unaudited interim condensed consolidated financial statements as of and for the three and six months ended June 30, 2024 and the related notes included in this Quarterly Report on Form 10-Q and our audited consolidated financial statements as of and for the year ended December 31, 2023 and the related notes contained in the Company’s Annual Report on Form 10-K filed with the SEC on February 27, 2024 (the “2023 Annual Report”). This Quarterly Report on Form 10-Q includes forward-looking statements. These forward-looking statements within the meaning of the federal securities law are based on our current expectations and beliefs concerning future developments and their potential effects on us. These forward-looking statements are not statements of historical fact and may include statements regarding possible or assumed future results of operations. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. Factors that might cause or contribute to such forward-looking statements include, but are not limited to, those set forth in Part II, Item 1A of this Quarterly Report on Form 10-Q and in Item 1A. Risk Factors in the 2023 Annual Report. Unless the context otherwise requires, references in this section to “the Company,” “we,” “us” and “our” refer to the business and operations of SES Holdings Pte. Ltd. (“Old SES”) and its consolidated subsidiaries prior to the Business Combination and to SES AI Corporation and its consolidated subsidiaries following the Closing. References in this section to our future plans that indicate the timing of when we expect such plans to be completed by a certain year mean at any point during that year.

Previous wording

We are apre-commercialization stage company engaged in the development and production of high-performance, Lithium-Metal (“Li-Metal”) rechargeable battery technologies for electric vehicles (“EVs”), Urban Air Mobility (“UAM”), which encompasses electric vehicle take-off and landing (“eVTOL”) technology, and other applications. Our differentiated battery technology has been designed to combine the high energy density of Li-Metal with the large-scale manufacturability of conventional Lithium-ion (“Li-ion”) batteries to help promote the transition from the global dependence on fossil fuel-based automotive vehicles to clean and efficient EVs in order to enable a new era of electric transportation on land in air.

Current wording

We are apre-commercialization stage company engaged in the development and production of high-performance, Lithium-Metal (“Li-Metal”) rechargeable battery technologies for electric vehicles (“EVs”), Urban Air Mobility (“UAM”), which encompasses electric vehicle take-off and landing (“eVTOL”) technology, and other applications. Our differentiated battery technology has been designed to combine the high energy density of Li-Metal with the large-scale manufacturability of conventional Lithium-ion (“Li-ion”) batteries to help promote the transition from the global dependence on fossil fuel-based automotive vehicles to clean and efficient EVs in order to enable a new era of electric transportation on land and in the air.

Previous wording

SES AI’s mission is to power a new era of electric transportation on land and in air with Li-Metal batteries. We believe Li-Metal is the “end game” for electric transportation energy storage with its potential for step-change in energy density compared to state-of-the-art Li-ion. Our team has dedicated the past decade to developing a comprehensive and proprietary Li-Metal battery technology platform, including high concentration solvent-in-salt electrolyte, ultra-thin wide format lithium anode, protective anode coating, and novel cell engineering processes that are based on scalable Li-ion manufacturing but address unique Li-Metal challenges. As we build more automotive large capacity Li-Metal cells and generate more data, artificial intelligence (“AI”) becomes an increasingly integral part in material development, battery health monitoring and incident prediction.

Current wording

SES AI’s mission is to power a new era of electric transportation on land and in the air with Li-Metal batteries. We believe Li-Metal is the “end game” for electric transportation energy storage with its potential for step-change in energy density compared to state-of-the-art Li-ion. Our team has dedicated the past decade to developing a comprehensive and proprietary Li-Metal battery technology platform, including high concentration solvent-in-salt electrolyte, ultra-thin wide format lithium anode, protective anode coating, and novel cell engineering processes that are based on scalable Li-ion manufacturing but address unique Li-Metal challenges. As we build more automotive large capacity Li-Metal cells and generate more data, artificial intelligence (“AI”) becomes an increasingly integral part in material development, battery health monitoring and incident prediction.

Previous wording

We believe that B-sample in EV is almost equivalent to commercial production for UAM. We believe that UAM is a perfect fit for Li-Metal and will require little additional development now that we have reached EV B-sample status. UAM frequently operates on a fleet business model where the key business metrics are cost per passenger per mile, with weight being a paramount factor to costs. We believe that the step-change gravimetric energy density that Li-Metal can potentially offer means that an aircraft has the potential to carry twice the number of passengers, or twice the payload for cargo applications, or fly twice the distance, which has the potential to significantly improve the profitability of UAM operators. We are converting one of our EV A-sample lines to be dedicated to UAM cell production in 2024.

Current wording

We believe that B-sample in EV is almost equivalent to commercial production for UAM. We believe that UAM is a perfect fit for Li-Metal and will require little additional development now that we have reached EV B-sample status. UAM frequently operates on a fleet business model where the key business metrics are cost per passenger per mile, with weight being a paramount factor to costs. We believe that the step-change gravimetric energy density that Li-Metal can potentially offer means that an aircraft has the potential to carry twice the number of passengers, or twice the payload for cargo applications, or fly twice the distance, which has the potential to significantly improve the profitability of UAM operators. We are converting one of our EV A-sample lines to be dedicated to UAM cell production by the end of 2024.

Previous wording

We are executing several initiatives to improve the environmental sustainability of our business, and to reduce cost and ensure traceability of our Li-Metal battery supply chain. The technological innovations include dry electrode that can significantly reduce our electricity consumption and CO2 and chemical solvent emission, and recycling of Li-Metal that allows us to build a new supply chain with better traceability and robustness. We also announced SES Cares, where we power advanced drones with our Li-Metal A-samples and B-samples to collect field data to train Avatar AI, at the same time, partner with operations such as forest fire monitoring and marine animal protection.

Current wording

We are executing several initiatives to improve the environmental sustainability of our business, and to reduce cost and ensure traceability of our Li-Metal battery supply chain. The technological innovations include dry electrode that can significantly reduce our electricity consumption and CO2 and chemical solvent emissions, and recycling of Li-Metal that allows us to build a new supply chain with better traceability and robustness. Recently, we also announced SES Cares, where we power advanced drones with our Li-Metal A-samples and B-samples to collect field data to train Avatar AI, at the same time, partner with operations such as forest fire monitoring and marine animal protection.

Previous wording

We believe that 2024 will be a key year in the commercialization of Li-Metal batteries for automotive applications. We plan to continue to focus on EV B-sample JDAs including building and operating B-sample lines, improving cell practical safety and accelerating future roadmap electrolyte development; building and shipping cells to UAM OEM partners; and improving Avatar AI prediction accuracy by deploying Avatar infrastructure and training it across a wide range of data.

Current wording

We believe that 2024 will be a key year in the commercialization of Li-Metal batteries for automotive applications. We continue to focus on EV B-sample JDAs including building and operating B-sample lines, improving cell practical safety and accelerating future roadmap electrolyte development; building and shipping cells to UAM OEM partners; and improving Avatar AI prediction accuracy by deploying Avatar infrastructure and training it across a wide range of data.

Previous wording

After B-Sample, we plan to transition to C-Sample in 2026, which we then expect to enable us to commence commercial production of our technology in 2027. We expect this transition to commercial production to lead to future research facilities and, eventually, commercial production manufacturing facilities in the United States, which will significantly increase our materials consumption and the rate of cash utilization over time.

Current wording

After B-Sample, we plan to transition to C-Sample in 2026, which we then expect to enable us to commence commercial production of our technology in 2027. We expect this transition to commercial production to lead to future research facilities and, eventually, commercial

Previous wording

As of March 31, 2024, we have not generated any revenue from sales to customers to date through our one operating segment and have spent $15.3 million and $11.7 million on gross research and development activities during the three months ended March 31, 2024 and 2023, respectively, which is prior to reimbursements received of $3.5 million and $3.2 million during the three months ended March 31, 2024 and 2023, respectively, from our OEM partners under the JDAs. As a result, we have incurred net losses of $15.6 million and $16.2 million for the three months ended March 31, 2024 and 2023, respectively. Our historical results may not be indicative of our future results for reasons that may be difficult to anticipate and our ability to generate revenue in the future that is sufficient enough to achieve profitability will depend largely on the successful development of our products. Accordingly, the drivers of our future financial results, as well as the components of such results, may not be comparable to our historical results of operations.

Current wording

As of June 30, 2024, we have not generated any revenue from sales to customers to date through our one operating segment and have spent $15.6 million and $14.6 million on gross research and development activities during the three months ended June 30, 2024 and 2023, respectively, and $30.9 million and $26.3 million on gross research and development activities during the six months ended June 30, 2024 and 2023, respectively, which is prior to reimbursements received of $0.6 million and $8.3 million during the three months ended June 30, 2024 and 2023, respectively, and $4.1 million and $11.5 million during the six months ended June 30, 2024 and 2023, respectively, from our OEM partners under the JDAs. As a result, we have incurred net losses of $19.9 million and $12.9 million for the three months ended June 30, 2024 and 2023, respectively, and net losses of $35.5 million and $29.2 million for the six months ended June 30, 2024 and 2023, respectively. Our historical results may not be indicative of our future results for reasons that may be difficult to anticipate and our ability to generate revenue in the future that is sufficient enough to achieve profitability will depend largely on the successful development of our products. Accordingly, the drivers of our future financial results, as well as the components of such results, may not be comparable to our historical results of operations.

Previous wording

During the three months ended March 31, 2024, we incurred a gain of $0.9 million associated with the change in fair value of the Sponsor Earn-Out liabilities compared with a gain of $0.6 million for the three months ended March 31, 2023. With the fair value of the Sponsor Earn-Out liabilities primarily tied to the Company’s stock price, continued volatility in the stock price could result in further gains or losses

Current wording

During the three and six months ended June 30, 2024, we incurred a gain of $1.4 million and $2.3 million, respectively, associated with the change in fair value of the Sponsor Earn-Out liabilities compared with a gain of $2.9 million and $3.5 million, respectively, for the three and six months ended June 30, 2023. With the fair value of the Sponsor Earn-Out liabilities tied to the Company’s stock price, continued volatility in the stock price or changes in the expected term could result in further gains or losses resulting from the change in fair value. Refer to “Note 8 – Sponsor Earn-Out Liabilities” to the unaudited interim condensed consolidated financial statements for additional information.

Previous wording

During the three months ended March 31, 2024, we had miscellaneous income of $0.9 million compared with miscellaneous income of $0.8 million for the three months ended March 31, 2023. The $0.1 million increase in miscellaneous income was primarily the result of a realized gain on foreign currency translation.

Current wording

During the six months ended June 30, 2024, we had miscellaneous income of $0.3 million, compared with miscellaneous income of $0.4 million for the six months ended June 30, 2023. This $0.1 million decrease in miscellaneous income was the result of an increase in the loss on foreign currency translation offset by an increase in fair value of equity investments.

Previous wording

The provision for income taxes for the three months ended March 31, 2024 increased to $0.2 million compared to $0.1 million for the three months ended March 31, 2023 mainly due to an increase in pre-tax income in China and South Korea.

Current wording

The provision for income taxes for the three and six months ended June 30, 2024 increased to $0.1 million and $0.3 million, compared to $0.3 million and $0.5 million for the three and six months ended June 30, 2023, respectively, primarily due to local taxes in the foreign jurisdictions in which the Company operates.

Previous wording

As of March 31, 2024, we had total cash and cash equivalents of $129.6 million and investments in marketable debt and equity securities of $189.1 million. As a pre-commercialization stage research and development company, the net operating losses we have incurred since inception are consistent with our strategy and budget.

Current wording

As of June 30, 2024, we had total cash and cash equivalents of $54.8 million and investments in marketable debt and equity securities of $239.9 million. As a pre-commercialization stage research and development company, the net operating losses we have incurred since inception are consistent with our strategy and budget.

Previous wording

Net cash used in operating activities of $9.0 million for the three months ended March 31, 2024 was primarily attributable to net loss of $15.6 million, as adjusted for stock-based compensation expense of $4.8 million, accretion income from marketable securities of $1.9 million, depreciation and amortization of $1.7 million, a gain on change in fair value of Sponsor Earn-Out liabilities of $0.9 million, and a $3.7 million working capital inflow. The working capital inflow was primarily driven by a $5.0 million decrease in prepaids and other assets primarily due to the receipt of $7.0 million in JDA receivable related payments from an OEM partner, of which $4.6 million was outstanding at year-end, and a $1.0 million decrease due to the renewal of our insurance policy at lower rates to cover potential liabilities under our indemnification obligations to our directors and certain officers partially offset by an increase in $1.4 million related to advanced payments for software development and research agreements. The working capital inflow was further decreased by a $2.7 million decrease in receivable from related party driven by $3.9 million in receipts and $1.2 million of billed activity and a $0.1 million decrease in inventory due to materials consumption. The working capital inflow was partially offset by a $3.6 million decrease in accrued expenses and other liabilities primarily due to decreases in accrued bonuses, accrued taxes, and professional fees associated with our audit.

Current wording

Net cash used in operating activities of $31.1 million for the six months ended June 30, 2024 was primarily attributable to net loss of $35.5 million, as adjusted for stock-based compensation expense of $9.6 million, accretion income from marketable securities of $3.9 million, depreciation and amortization of $3.7 million, a gain on change in fair value of Sponsor Earn-Out liabilities of $2.3 million, other adjustments to net loss of $1.5 million, and a $1.2 million working capital outflow. The working capital outflow was primarily driven by a $2.5 million increase in prepaids and other assets. The increase in prepaids and other assets was primarily due to advance payments made for equipment purchases pursuant to our JDA agreements and prepaid costs related to software development. Additionally, a $1.8 million decrease in accrued expenses and other liabilities was due to the timing of legal fees and equipment purchases also contributed to the working capital outflow. The outflow was partially offset by a $3.3 million receipt from the related party.

Previous wording

Net cash used in operating activities of $15.4 million for the three months ended March 31, 2023 was primarily attributable to net loss of $16.2 million as adjusted for stock-based compensation expense of $6.5 million, accretion income from marketable securities of $2.9 million, depreciation and amortization of $1.1 million, a gain on change in fair value of Sponsor Earn-Out Liability of $0.6 million and a $2.5 million working capital outflow. The working capital outflow was primarily driven by a $2.6 million increase in prepaids and other assets primarily due to the renewal of the insurance policy to cover potential liabilities under our indemnification obligations to our directors and certain officers, a $0.4 million increase in receivable from related party driven by activity from the associated JDA, and a $0.1 million increase in inventory due to materials purchases. The working capital outflow was partially offset by a $0.6 million increase in accrued expenses and other liabilities primarily due to increases in accrued bonuses, accrued taxes, and professional fees associated with audit fees.

Current wording

Net cash used in operating activities of $30.9 million for the six months ended June 30, 2023 was primarily attributable to net loss of $29.2 million, as adjusted for stock-based compensation expense of $13.8 million, accretion income from marketable securities of $5.9 million, a gain in change in fair value of Sponsor Earn-Out Liability of $3.5 million, depreciation and amortization of $2.3 million and a $8.1 million working capital outflow. The working capital outflow was primarily driven by a $6.6 million increase in prepaids and other assets, and a $3.8 million decrease in accrued expensed and other liabilities, partially offset by a $2.3 million increase in accounts payable. The increase in prepaids and other assets was primarily due to amounts due from JDA partners, the renewal of an insurance contractto cover potential liabilities under our indemnification obligations to our directors and certain officers, and prepaid costs related to software development. The decrease in accrued expenses and other liabilities was primarily due to the release of deferred liabilities related to JDAs. The increase in accounts payable was primarily due to the extended timing of our payments.

Previous wording

Net cash provided by investing activities was $53.2 million for the three months ended March 31, 2024 compared to net cash used in investing activities of $43.1 million for the three months ended March 31, 2023.

Current wording

Net cash provided by investing activities was $0.5 million for the six months ended June 30, 2024, compared to net cash used in investing activities of $23.8 million for the six months ended June 30, 2023.

Previous wording

Purchases and Maturities of Investments – Net proceeds from investments in marketable debt and equity securities were $60.0 million for the three months ended March 31, 2024 compared to $37.1 million of net purchases of investments in debt and equity securities for the three months ended March 31, 2023.

Current wording

Purchases and Maturities of Investments – Net proceeds from investments in marketable debt and equity securities were $11.0 million for the six months ended June 30, 2024, compared to net purchases of investments in marketable debt and equity securities of $16.0 million during the six months ended June 30, 2023.

Previous wording

Capital Spending – Capital expenditures were $6.8 million and $6.0 million for the three months ended March 31, 2024 and 2023, respectively, and primarily related to purchases of lab machinery and equipment, lab tools and instruments. We expect capital expenditures for the rest of 2024 to continue to increase compared to 2023 as we continue to invest in the build out of our manufacturing pre-production facilities.

Current wording

Capital Spending – Capital expenditures were $10.5 million and $7.8 million for the six months ended June 30, 2024 and 2023, respectively, and primarily related to the timing of purchases of lab machinery and equipment, lab tools and instruments related to our build out of production lines and facilities. We expect capital expenditures for the rest of 2024 to increase compared with the corresponding periods in 2023 as we continue to invest in the build out of our fourth and fifth production lines and research and development facilities.

Previous wording

Net cash provided by financing activities was immaterial for the three months ended March 31, 2024 and March 31, 2023.

Current wording

Net cash provided by financing activities was $0.1 million for the six months ended June 30, 2024 and 2023.

Previous wording

(1) Purchase obligations include commitments for the purchase of lab supplies and equipment as well as committed spend related to a JDA. These commitments are derived from purchase orders, supplier contracts and open orders based on projected demand information.

Current wording

(1) Purchase obligations include commitments derived from a JDA agreement, outstanding purchase orders, and supplier contracts of lab supplies and equipment.

Previous wording

As of March 31, 2024, we had a letter of credit issued by a financial institution totaling $0.6 million. The letter of credit relates to deposits the Company is required to maintain under one of its operating lease agreements. We have restricted cash that serves as collateral for this outstanding letter of credit that is included in other assets on our unaudited interim condensed consolidated balance sheet. No amounts have been drawn under the letter of credit.

Current wording

As of June 30, 2024, we had a letter of credit issued by a financial institution totaling $0.6 million. The letter of credit relates to deposits the Company is required to maintain for one of its operating lease agreements. We have restricted cash that serves as collateral for this

Previous wording

See “Note 2 – Basis of Presentation” of our accompanying unaudited interim condensed consolidated financial statements for the three months ended March 31, 2024 included in this Quarterly Report on Form 10-Q for more information about recent accounting pronouncements, the timing of their adoption, and their potential impact on our financial condition, results of operations and cash flows.

Current wording

See “Note 2 – Basis of Presentation” of our accompanying unaudited interim condensed consolidated financial statements for the three and six months ended June 30, 2024 included in this Quarterly Report on Form 10-Q for more information about recent accounting pronouncements, the timing of their adoption, and their potential impact on our financial condition, results of operations and cash flows.

Previous wording

Our financial statements have been prepared in accordance with U.S. GAAP. In the preparation of these unaudited interim 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 unaudited interim condensed financial statements, as well as the reported expenses incurred during the reporting periods.

Current wording

Our financial statements have been prepared in accordance with U.S. GAAP. In the preparation of these unaudited interim 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 unaudited interim condensed consolidated financial statements, as well as the reported expenses incurred during the reporting periods.