QuantumScape : Second Quarter 2023 Shareholder Letter

Q2 FISCAL 2023

LETTER TO SHAREHOLDERS

JULY 26, 2023

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Dear shareholders,

At the beginning of 2023, we set a few core goals to enable our transition from prototype to product. With the first half of the year behind us, we're pleased to share an update on our progress.

Customer Shipments

The first of our 2023 goals was to increase the cathode loading of our cells, which increases cell energy by packing more cathode active material into the same area. Last quarter we shared testing results of two-layer unit cells using higher-loading cathodes. Our system enables higher-loading cathodes thanks to our anode-freelithium-metal technology, which eliminates the graphite host material used in conventional battery anodes and so reduces the transport distance lithium ions have to traverse as the battery cycles.

These new cathodes, with a loading of greater than 5 mAh/cm2, are capable of storing more energy, not only compared with the cathodes in cells we previously shipped to customers (~3.1 mAh/cm2), but also relative to the cathodes used in commercial cells such as the 2170 battery cell (~4.3 mAh/cm2) that power some of today's best-selling EVs.1 Higher cathode loading is a critical element to improve energy density beyond what is available in the leading EV battery cells today.

We are happy to report that we have shipped high cathode-loading unit cells to multiple automotive partners, in line with our development roadmap. This is an important milestone because this level of cathode loading is close to our commercial-intent cathode design for energy-dense cells and represents a significant step toward delivering a commercial product. In our view, when combined with the 24-layer capability we have already shown in our A0 prototype cells and other planned improvements, these shipments represent a validation of our ability to achieve industry-leading energy and power performance for our first commercial product.

Product Roadmap

As announced last quarter, our first commercial product is planned to be a ~5 Ah cell, which we believe will offer a combination of energy density and power unmatched by the leading EV batteries available today. We are designating this first product QSE-5.2 We are already working closely with a prospective launch customer in the automotive sector for this cell, with the goal of bringing our next-generation technology to the electric vehicle market as rapidly as possible.

1. Cathode loading of 2170 cells is calculated from data published by CleanTechnica.
2. QSE-5stands for QuantumScape Energy Cell, 5 Ah.

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In our recent webinaron energy density, we showed our latest product performance roadmap:

Shifting the Energy-Power Performance Frontier

As the chart shows, our technology enables a shift of the entire energy-power performance frontier. We expect QSE-5 to push this frontier well beyond the capabilities of today's best-performing EV cells, better than 800 Wh/L with the ability to charge from 10% to 80% in approximately 15 minutes. We believe this is a unique selling point: with our technology enabling longer range, higher power and faster charging, automotive OEMs gain the ability to better differentiate their EV offerings.

Delivering on our product roadmap will undoubtedly require us to successfully address many technical and manufacturing challenges, including our key goals for 2023. However, we believe

QSE-5 raises the bar for EV performance and puts battery development on a fundamentally new trajectory. To help investors and the general public understand the complexities of designing more energy-dense batteries, we have developed a series of educational blogs. We encourage interested shareholders to visit our website for more details.

Technical Development

Last quarter, we shared data from high-powerdischarge of unit cells with high-loading cathodes. This showed that in our system, cathodes optimized for high energy density can also meet the demands of high-performance vehicle applications, including those that require sustained discharge rates of 6C-8C.3

In addition to high-rate discharge, improving the EV driving experience requires high-power fast charging. We have targeted 15-minute fast charging from 10% to 80% for our first commercial product, faster than conventional energy-dense cells used in today's best-selling EVs. Fast charge rates present a challenge for conventional cell architectures, which have to transport lithium ions from one side of

3 Read our blogfor more information on C-rates.

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the battery to the other and then drive them into the graphite or silicon host material, which imposes a kinetic penalty that limits power. Our system unlocks higher performance by plating lithium directly on the anode layer, without the need for a host material. The lithium ions in our system have a shorter distance to traverse and don't incur the diffusion penalty of intercalating into a graphite host material, as is the case in a conventional cell.

As a result, our system can plate lithium as fast as the cathode can deliver it. Thanks to this fundamental advantage, we've now demonstrated unit cells capable of meeting our 15-minutefast-charge target, even with a high-loading cathode.

State of Charge [%]

100
	QS	energy	-dense
80			cathode	45 ºC		Commercial								Top-	selling
															long	range	EV,
								target
																pack	temp	≥ 45 ºC
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40															Charge Rate†		4C
														Cathode Loading		5.3 mAh/cm2
												Charge Current Density†		21.1 mA/cm2
															Temperature		45°C
20																	Anode		Anode-free Li metal
													Depth of Discharge		100%
																	Area‡		Commercially relevant
																Pressure		< 3.4 atm
0																	Layers		2
0	5	10	15	20	25	30	35	40	45	50	55	60

Time [min]

†C/3 (1.76 mA/cm2) used from 0-10% SOC, 4C (21.1 mA/cm2) used from 10% to upper cut-off voltage (4.25V) ‡Commercially relevant dimensions may vary from 60x75 mm to 70x85 mm, depending on cell format

The fast-charge performance of QuantumScape unit cells with energy-dense cathodes compared to a top-sellinglong-range EV

As this data shows, our anode-free design enables not only higher energy density, via higher cathode loading and a thinner anode, but also higher power density as a result of shortened ion-transport paths. This fundamental advantage is why we believe our technology is capable of an unmatched combination of energy and power. When referenced against a top-selling EV, the speed advantage is clear: our system can deliver a ~15-minute charge from 10% to 80% state of charge, almost twice as fast as the reference car's 27 minutes.

Since most batteries can deliver higher power at higher temperatures, several EV manufacturers give drivers the option to pre-heat (or pre-condition) their battery pack before fast charging. For example, the top-selling EV model referenced in the previous chart achieves its fast-charge performance with pack temperatures at or above 45 °C. Lithium-ion batteries also generally self-heat rapidly under fast-charge conditions to temperatures of 45 °C or higher, due to their inherent internal resistance. For these reasons, we believe 45 °C is the most relevant condition for understanding fast-charging performance.

Another key technical development milestone is safety testing. In Q2, we ran a suite of safety tests on our A0 prototype cells, including nail penetration, overcharge, external short circuit, and thermal stability

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testing up to 300 °C, and we're pleased to report that the A0 prototype cells successfully passed these safety tests according to the specification set by a leading automotive customer, with hazard levels of 3 or lower as defined by EUCAR and SAE J2464 standards.

We attribute these encouraging results to our solid-state architecture, which replaces the combustible polymer separator in conventional lithium-ion cells with a noncombustible solid-state ceramic separator and eliminates the graphite fuel from the anode; however, it's important to note that safety is a function of cell materials and design, and as we improve packaging efficiency and energy density for QSE-5, the cell itself will have different physical characteristics and potentially a different safety profile. Any new cell design must be re-tested to establish its behavior under abuse conditions.

Manufacturing Scale Up

We also made significant progress last quarter on our manufacturing scale-up process. We reported previously on an innovative fast separator heat-treatment process that offers the potential for dramatically better throughput. Initial deployment of this fast process is another key goal for 2023, and we plan to roll it out in two stages, which we have dubbed Raptor and Cobra. The underlying work on these processes has been ongoing for several years, and as the data has come in, it's clear that fast separator processes are the endgame for our separator production.

Raptor introduces a step-change process innovation which allows continuous-flow heat treatment equipment to process separator films much more rapidly while applying much less total heat energy per film, increasing the throughput of the equipment and bringing down the energy cost of producing an individual separator.4 Raptor is intended to support production of initial B0 samples from QS-0 in 2024, and so our goal is to qualify Raptor for production by the end of 2023. We're pleased to report that installation of Raptor equipment is complete, and we continue to expect initial production to begin before the end of the year.

Cobra is a further evolution of the fast separator process, which builds on the innovations of Raptor and adds even faster processing, higher energy efficiency and better unit economics. We see Cobra as a groundbreaking innovation in ceramics processing and we believe it represents the best pathway to gigafactory-scale manufacturing. We are currently operating prototypes of Cobra and intend to roll out our first production Cobra system to support higher-volumeB-sample production from QS-0.

As an integral part of our scale up and transition from R&D to production, we continue to strengthen our leadership team with deep expertise from high-volume,high-tech manufacturing industries, such as semiconductors, batteries, automotive and magnetic storage.

Financial Outlook

For the second quarter 2023, capital expenditures were $25M. GAAP operating expenses were $124M. Cash operating expenses, defined as operating expenses less stock-based compensation and depreciation, were $64M. For the full-year 2023, we keep our guidance on capital expenditures of $100M to $150M and cash operating expenses of $225M to $275M.

During Q2, our capex primarily went toward facility spend for our consolidated QS-0pre-production line. Other notable capex spend was driven by progress payments made toward various equipment projects, including the Raptor equipment. For the remainder of the year, our capex will continue to be allocated toward facility work and equipment for our consolidated QS-0pre-production line.

4 Cover photo shows Raptor automation and conveyor equipment.

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