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Item 7. Management’s Discussion and Analysis

2025-02-28 compared with 2024-02-28 · 84 added, 123 removed, 72 unchanged (74% of the section changed)

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The forward-looking statements are dependent upon events, risks, and uncertainties that may be outside of our control.

Our actual results could differ materially from those discussed in these forward-looking statements.

Our actual results could differ materially from those

Solid Power, Inc.

| 2024 Form 10-K | 35

discussed in these forward-looking statements.

Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed elsewhere in this Report under “Part I, Item 1A.

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We do not undertake, and expressly disclaim, any obligation to publicly update any forward-looking statements, whether as a result of new information, new developments or otherwise, except to the extent that such disclosure is required by applicable law.

Solid Power is developing solid-state battery technology for EV and additional markets served by battery manufacturers.

Our core technology is our proprietary solid electrolyte material, which replaces the liquid or gel electrolyte used in traditional lithium-ion batteries.

We believe that our electrolyte material can improve driving range, battery life, safety performance, and battery costs.

We are also developing solid-state cells with our electrolyte, with the aim of commercializing our technology by selling our electrolyte material and licensing our cell designs.

This approach is capital light, unlike other battery manufacturers who require significant production facilities and equipment.

This strategy allows us to focus on our core strengths of electrolyte production and solid-state technology development.

We currently produce our electrolyte on a pilot manufacturing line, which is used in our cell development and for customer sampling.

We currently develop our cells on our two pilot lines, producing multiple cell sizes to both support our partners and refine cell designs.

Longer-term, we expect our pilot lines to focus on research and development.

Solid Power, Inc.

| 2023 Form 10-K | 37

We have partnered with industry leaders BMW, Ford, and SK On and will continue to work closely with our partners to improve cell designs, produce electrolyte material, and commercialize our technology.

Our products are currently in the development stage and require further research and improvement before we can commercialize our technology.

For more information, see “Risk Factors – Risks Related to Development and Commercialization.”

Solid Power is a U.S.-based leader in solid-state battery technology and manufacturing processes.

Our core technology is a sulfide-based solid electrolyte material, which replaces the liquid or gel electrolyte used in traditional lithium-ion battery cells.

We believe our electrolyte technology has the potential to enable a step-change improvement in battery cell performance beyond what is currently achievable in conventional lithium-ion battery cells, including improved energy density, battery life, and safety performance.

We are currently targeting the EV market due to the size and perceived demand for next generation battery technology but believe our technologies can have a broader application as they mature.

Key Factors Affecting Operating Results

We are a research and development-stage company and have not generated significant revenue through the sale of our electrolyte or licensing of our cell designs.

Our ability to commercialize our products depends on several factors that present significant opportunities for us but also pose material risks and challenges, including those discussed in the “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements,” sections of this Report, which are incorporated by reference.

Prior to reaching commercialization, we must improve our products to ensure they meet the performance and safety requirements of our customers.

We also will have to continue to negotiate licensing and supply contracts with our customers on terms and conditions that are mutually acceptable.

We will need to scale production of our electrolyte material to satisfy anticipated demand.

Our ability to commercialize our products depends on several factors that present significant opportunities but also pose material risks and challenges, including those discussed in the “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” sections of this Report, which are incorporated by reference.

Prior to reaching commercialization, we must improve our products to ensure they meet the performance requirements of our customers.

We also will have to continue to negotiate commercial agreements with our customers on terms and conditions that are mutually acceptable.

To satisfy anticipated demand, we will need to scale production of our electrolyte.

All of these factors will take time and affect our operating results.

Since many factors are difficult to quantify, our actual operating results may be different than we currently anticipate.

Our revenue generated to date has primarily come from performance on research and development licensing activities and government contracts.

We continue to deploy substantial capital to expand our production capabilities and engage in research and development programs.

We also expect to continue to incur significant administrative expenses as a publicly traded company.

Since many factors are difficult to quantify, our actual operating results may be different than currently anticipated.

Revenue generated to date has primarily come from performance on research and development licensing agreements and government contracts.

We will need to continue to deploy substantial capital to expand our production capabilities and engage in research and development programs.

We also expect to continue to incur administrative expenses as a publicly traded company.

In addition to meeting our development goals, commercialization and future growth and demand for our products are highly dependent upon consumers adopting EVs.

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We currently conduct our business through one operating segment.

As a research and development company with no commercial operations, our activities to date have been limited and were conducted primarily in the United States.

Our historical results are reported under GAAP and in U.S.

As a research and development company with no commercial operations, our activities were conducted primarily in the United States as well as Republic of Korea.

Our historical results are reported under U.S.

generally accepted accounting principles (“GAAP”) and in U.S.

Results of Operations

The following table is a consolidated summary of our operating results for the periods indicated:

Year Ended December 31,

(in thousands)

Operating Expenses

Research and development

Selling, general and administrative

Total operating expenses

Operating Loss

Nonoperating Income and Expense

Interest income

Change in fair value of warrant liabilities

Interest expense

Total nonoperating income and expense

Income tax benefit

Net Loss Attributable to Common Stockholders

Other Comprehensive Income (Loss)

Comprehensive Loss Attributable to Common Stockholders

NM = Not meaningful

During the year ended December 31, 2024, we increased capital and operational investments centered on expanding our electrolyte capabilities and advancing our cell designs.

Our most significant capital investment in 2024 was the EIC, which is designed to develop, improve, and test electrolyte manufacturing processes.

Our operational investments were focused on the strategic enhancement of our research and development workforce, strengthening our presence in the Republic of Korea, as well as efforts to improve electrolyte and cell performance.

We have entered into various collaborative arrangements for research and development efforts related to our technologies.

In 2024, we generated revenue of $20.1 million, which represented a $2.7 million, or 16%, increase compared to our 2023 revenue of $17.4 million.

This increase was driven primarily by our performance on the SK On Agreements, with strong execution on the line installation agreement and completion of key steps in the transfer of our technology, which together accounted for $11.8 million of our 2024 revenue.

We intend to continue executing on the SK On Agreements and anticipate an increase in revenue in 2025 as we achieve

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| 2024 Form 10-K | 36

The key factors driving our 2023 increase in operating loss were as follows:

● Revenue and direct costs – our overall revenue and related direct costs increased for the period as a result of additional performance under our JDAs and government contracts.

● Research and development – our research and development costs increased for the period primarily as a result of increased labor costs and material consumption as we expanded the development efforts of our battery cells and electrolyte material.

We expect our development costs to continue to increase as we continue to accelerate both the pace and scope of our development efforts.

● Selling, general, and administrative – our selling, general and administrative expenses increased for the period primarily due to additional use of outside professional services, additional planned hiring and workforce development associated with increasing our headcount to over 270 people, and enterprise resource planning system costs and implementation efforts .

● Operating expenses – non-cash stock-based compensation costs increased for the period across direct costs, research and development costs, and selling, general and administrative expenses related to our increased headcount.

● Nonoperating income – our nonoperating income decreased for the period primarily due to a lesser gain on fair value adjustment of warrant liabilities, partially offset by increased interest income related to strategic cash investment yields.

milestones under the SK On Agreements.

The decrease in government revenue in 2024 was related to the completion of certain government grants in 2023 and the timing of entry into the Assistance Agreement with DOE.

While there can be no assurance that we will continue to receive funding under our government contracts and grants in the amounts we expect or at all, government revenue may increase in 2025 compared to 2024 as we execute on the Assistance Agreement and begin facility engineering and construction of a pilot electrolyte line using a continuous manufacturing process.

Operating Expenses

Our operating expenses consist primarily of research and development costs focused on improving the performance of our electrolyte and cell designs.

In 2024, operating expenses were $125.5 million, an increase of $17.5 million compared to our operating expenses of $108.0 million in 2023.

This increase was largely attributable to a 30% increase in electrolyte production in 2024 compared to 2023.

This resulted in a corresponding increase to our production costs, such as materials, lab supplies, and hazardous waste removal.

In 2025, we expect production costs to be consistent with 2024.

Although we anticipate increasing electrolyte production in 2025, we intend to offset the increase in production cost with more favorable pricing on input materials and hazardous waste disposal.

The increase in operating expenses in 2024 also resulted from equipment purchases made in the performance of the SK On Agreements, which accounted for $8.2 million of our operating expenses in 2024.

In 2025, we expect expenses associated with the execution of the SK On Agreements to increase in correlation with an increase in revenue as we achieve the next milestones under the SK On Agreements.

Additionally, we had an increase in costs related to scaling our operations in the United States and the Republic of Korea in 2024.

Overall, we expect operating expenses to increase in 2025 compared to 2024 as we continue to focus on our collaborative arrangements and research and development efforts.

Nonoperating Income and Expense

Our nonoperating income and expense consists of interest income earned on our investments, the non-cash change in our fair value of our warrant liabilities, and non-recurring expense items.

In 2024, nonoperating income and expense was $10.1 million, a decrease of $15.0 million compared to our nonoperating income and expense of $25.1 million in 2023.

This decrease was driven in part by the reduced cash balance of our investments in 2024, which resulted in a lower actual book return of our investments.

As a result, interest income in 2024 was $17.7 million, a decrease of $2.6 million compared to interest income of $20.3 million in 2023.

The decrease in nonoperating income and expense was also due to a change in the fair value of our warrant liabilities that drove a year-over-year increase in expense of $9.4 million as well as a $2.0 million non-cash loss on the disposal of assets.

Liquidity and Capital Resources

Sources of Liquidity

Our primary sources of cash have historically derived from the sale of equity, with a small portion coming from performance on commercial revenues and government contracts.

As of December 31, 2023 and 2022, we had $415.6, and $496.1 million of total liquidity, respectively, as set forth below:

The sale of equity has historically been our primary source of cash, with a smaller portion of cash coming from achievement of performance milestones under agreements with our partners and our government contracts.

As of December 31, 2024 and 2023, we had total liquidity as set forth below:

(in thousands)

December 31, 2023

December 31, 2022

Cash and cash equivalents

Marketable securities

Long-term investments

Available-for-sale securities

Total liquidity

Total current liabilities

As of December 31, 2024, contract receivables were $1.4 million, deferred revenue was $3.2 million, and total current liabilities were $20.0 million.

As of December 31, 2023, contract receivables were $1.6 million, deferred revenue and deferred revenue from related parties was $0.8 million, and total current liabilities were $15.9 million.

Short-Term Liquidity Requirements

Our short-term liquidity requirements include operating and capital expenses needed to further our research and development programs and to further optimize our pilot production lines and electrolyte manufacturing capabilities.

We anticipate that our most significant capital expenditures in 2024 will relate to finishing construction of our advanced electrolyte research facility and enhancing the capabilities of our electrolyte production facility.

We anticipate our total combined capital and operational expenditures for 2024 will be between $100 million and $120 million, which includes approximately $1.60 million for the payment of contractual cash obligations as of December 31, 2023, primarily related to payments for operating leases.

We expect to fund our short-term liquidity requirements through our cash on hand and other liquid assets.

Our short-term liquidity requirements include operating and capital expenses needed to further our research and development programs and to install our continuous electrolyte production line.

We anticipate that our most significant capital expenditures in 2025 will relate to facility engineering and construction of a pilot electrolyte line using a continuous manufacturing process and improvements to our cell development capabilities.

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We anticipate our total combined capital expenditures and cash flow from operations for 2025 will be between $100 million and $120 million, excluding any benefit from the Assistance Agreement.

We expect to fund our short-term liquidity requirements through our cash on hand and other liquid assets.

Long-Term Liquidity Requirements

We believe that our cash on hand is sufficient to meet our operating cash needs and working capital and capital expenditure requirements for a period of at least the next 12 months and longer term until we generate adequate cash flows from licensing activities and/or electrolyte sales.

We also believe that we have adequate cash on hand for our $50 million stock repurchase program, which our Board approved in light of our strong cash position.

We may need additional cash if there are material changes to our business conditions or other developments, including changes to our operating plan, development progress, negotiations with OEMs, cell manufacturers, or other suppliers, market adoption of EVs, supply chain challenges, competitive pressures, inflation, and regulatory developments.

We believe that our cash on hand is sufficient to meet our operating cash needs and working capital and capital expenditure requirements for a period of at least the next 12 months.

Longer-term, we believe we have adequate liquidity to support our operations until we generate adequate cash flows from electrolyte sales and/or licensing activities or we raise additional capital.

We also believe that we have adequate cash on hand for our stock repurchase program should we choose to execute additional share repurchases.

We may require additional liquidity sources if there are material changes to our business conditions or other developments, including changes to our operating plan;

development progress or delays;

negotiations with OEMs, cell manufacturers, or other customers;

market adoption of EVs;

supply chain challenges;

competitive pressures;

and inflation.

To the extent that our resources are insufficient to satisfy our cash requirements, we may need to seek additional equity or debt financing.

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Under the stock repurchase program, we may purchase shares of our common stock from time to time until the repurchase program expires on December 31, 2025.

The shares of common stock may be purchased at management’s discretion on the open market, in unsolicited negotiated transactions, or in any manner that complies with the provisions of Rule 10b-18 of the Exchange Act.

The shares of common stock may be purchased on the open market, in unsolicited negotiated transactions, or in any manner that complies with the provisions of Rule 10b-18 of the Exchange Act.

Management’s decision to repurchase shares will depend on a number of factors, such as the price of our common stock, economic and market conditions, and corporate and regulatory requirements.

During the year ended December 31, 2024, we repurchased 5,704,401 shares of common stock at an average cost of $1.59 per share for an aggregate cost of approximately $9.07 million.

The following table summarizes our cash flows from operating, investing, and financing activities for the periods presented.

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Net cash and cash equivalents used in operating activities

Net cash and cash equivalents provided by (used in) investing activities

Net cash and cash equivalents provided by financing activities

Net cash and cash equivalents provided by investing activities

Net cash and cash equivalents provided by (used in) financing activities

Cash used in operating activities:

Cash used in operating activities increased from 2022 to 2023 primarily attributable to our operating loss, which was driven by continued increase in direct, research and development, and selling, general, and administrative expenses.

We expect cash flows used in operating activities to remain at these increased levels as we continue the pace and scope of our development efforts and work to achieve commercialization of our products.

Cash used in operating activities increased $5.6 million from 2023 to 2024 primarily due to increased research and development costs related to improving our electrolyte and cell designs and increased electrolyte production.

The increase in cash used in operating activities was also due to increased direct equipment costs associated with execution of the SK On Agreements, with a portion of these costs reflected in Prepaid expenses and other current assets in the Consolidated Balance Sheets as of December 31, 2024.

The increase in cash used in operating activities was partially offset by increased cash received from customers, with $21.1 million of cash received from customers in 2024 compared to $12.6 million of cash received from customers in 2023.

Cash provided by investing activities:

Cash provided by investing activities increased $21.7 million from 2023 to 2024 primarily due to increased proceeds from purchases and sales of available-for-sale securities, which provided $86.8 million of proceeds in 2024 compared to $77.6 million of proceeds in 2023.

The increase in cash provided by investing activities was partially offset by capital expenditures for construction of the EIC in 2024 and cash used for our investment in a strategic partner in the Republic of Korea.

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Cash provided by (used in) investing activities:

Cash provided by investing activities increased from 2022 to 2023 primarily due to the net effect of increased purchase and sales of marketable securities, in addition to decreased capital expenditures for property, plant and equipment.

Capital expenditures were primarily for custom manufacturing equipment in connection with our expansion of electrolyte production capabilities.

As our production processes are scaled in the future for commercialization, especially with respect to our electrolyte material, we expect capital expenditures to increase.

Cash provided by financing activities:

Cash provided by financing activities for 2022 and 2023 were primarily related to the exercise of stock options and the sale of shares of common stock under the ESPP, partially offset by leased equipment payments.

Cash provided by (used in) financing activities:

Cash used in financing activities increased $9.6 million from 2023 to 2024 primarily as a result of cash utilized for the repurchase of $9.07 million of our common stock under the stock repurchase program.

Off-Balance Sheet Arrangements

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Critical Accounting Estimates

Our discussion and analysis of financial condition and results of operations are based upon our financial statements included elsewhere or incorporated by reference in this Report.

Our discussion and analysis of financial condition and results of operations are based on our financial statements included elsewhere or incorporated by reference in this Report.

The preparation of our financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses.

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Effect if Results Differ From Assumptions

The private placement warrant liability is classified as a liability, in accordance with ASC Topic 815, as they do not satisfy the criteria to be classified as equity based on the indexation criteria.

The private placement warrant liability is classified as a liability, in accordance with Accounting Standards Codification (“ASC”) 815 – Hedge Accounting, as they do not satisfy the criteria to be classified as equity based on the indexation criteria.

Public and private warrants are recorded at their fair value at the date of issuance, and subsequently remeasured at each reporting period end.

Any change in value is recognized through the consolidated statement of operations.

Any change in value is recognized through the consolidated statements of operations.

Valuation of private placement warrants requires that we make significant judgments and assumptions related to the fair value based on the Black-Scholes model including term, stock price, volatility and the selection of guideline public companies, risk free rate and dividend yield.

If we were to change our judgments or estimates used in valuation of private warrants, it could cause a material increase or decrease to the gain or loss realized from the change in fair value of private placement warrants, and to the underlying warrant liability.

Stock -Based Compensation

Judgments and Uncertainties

Effect if Results Differ From Assumptions

We record stock-based compensation expense according to the provisions of ASC Topic 718 – Stock Compensation.

ASC Topic 718 requires all share-based awards to employees, including grants of employee stock options, restricted stock units, and shares purchased through the

Under the provisions of ASC Topic 718, we determine the appropriate fair value model to be used for valuing share-based issuances and the amortization method for recording compensation cost, which can be impacted by the following assumptions:

expected term

expected volatility

expected dividend yield

risk-free interest rate

If we were to change any of these judgments or estimates, it could cause a material increase or decrease in the amount of stock-based compensation expense reported.

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ESPP to be recognized in the financial statements based on their fair values.

The grant date fair value of Legacy Solid Power’s common stock was historically determined by its board of directors with the assistance of management and an independent valuation.

Collaborative Revenue

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Effect if Results Differ From Assumptions

We recognize revenue from our research and development collaboration agreements representing joint operating activities in accordance with ASC Topic 808, Collaborative Arrangements.

The elements of the collaboration agreements in which both parties to the contract are active participants and to which both parties are exposed to significant risks and rewards that are dependent on the commercial success of the efforts under the contract are recorded as collaborative arrangements.

We recognize revenue from our research and development collaboration agreements representing joint operating activities in accordance with ASC 808 – Collaborative Arrangements.

These agreements include the following components:

parties to the contract are active participants, both parties are exposed to significant risks and rewards, and both parties are dependent on the commercial success of the efforts under the contract.

Our revenue recognition accounting methodology requires us to make significant estimates and assumptions, and to apply professional judgment.

Our collaborative arrangements are recognized over time using the input measurement method utilizing labor hours in relation to total labor hours anticipated to satisfy the combined performance obligation.

Collaborative revenues from cost-based contracts are recognized based on costs incurred during each period plus any earned fee.

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If we were to change our judgments or estimates, it could cause a material increase or decrease in the amount of revenue or deferred revenue that we report in a particular period.

Judgments and Uncertainties

Effect if Results Differ From Assumptions

Under ASC 842, at contract inception we determine if an arrangement meets the definition of a lease, as either operating or financing leases.

At lease commencement, we record and recognize right-of-use assets for the lease liability amount and initial direct costs incurred, offset by lease incentives received.

We record lease liabilities for the net present value of future lease payments over the lease term.

The discount rate we use is generally our estimated incremental borrowing rate unless the lessor’s implicit rate is readily determinable.

We calculate discount rates periodically to estimate the rate we would pay to borrow the funds necessary

Judgments made by management for our lease obligations include the determination of our incremental borrowing rate and the length of the lease term, which includes the determination of renewal options that are reasonably assured.

We use our estimated incremental borrowing rate in determining the present value of lease payments for purposes of determining lease classification and recording lease liabilities and lease assets on our consolidated balance sheets.

Our incremental borrowing rate is determined based on a synthetic credit rating, determined using a valuation model, adjusted to reflect a secured

These judgments may produce materially different amounts of depreciation, amortization and rent expense, right-of-use assets, and lease liabilities than would be reported if different assumed lease terms were used.

Solid Power, Inc.

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Judgments and Uncertainties

Effect if Results Differ From Assumptions

to obtain an asset of similar value, over a similar term, with a similar security.

credit rating and a developed spread curve, if applicable, applied to a risk-free rate yield curve.

The lease term can affect the classification of a lease as finance or operating for accounting purposes, the amount of the lease liability and corresponding right-of-use lease asset recognized, the term over which related leasehold improvements for each facility are amortized and any rent holidays and/or changes in rental amounts for recognizing rent expense over the term of the lease.

Research and Development

Judgments and Uncertainties

Effect if Results Differ From Assumptions

Our Company is in the research and development phase.

Our product offering relies heavily on new technology currently undergoing development and does not yet meet standard specifications to be sold commercially.

Therefore, all related costs are currently accounted for as part of research and development expense.

The criteria established by the Company to determine when commercialization has been reached includes the length of time the units have been operational in the field and the level of performance at which those units operate.

As we transition from the research and development phase and into a full commercial phase, all inventoriable costs will be capitalized.

As of December 31, 2023, the criteria for commercialization have not yet been met.

Research and development costs require us to make judgments regarding our progress toward commercialization.

We routinely assess this progress to prepare for the change in cost treatment.

If we were to change our judgment regarding research and development costs or our progress toward commercialization, it could cause a material change in cost treatment.

Quantitative and Qualitative Disclosures About Market Risk

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis