Stockholders' Equity

12 Months Ended

Dec. 31, 2021

Stockholders' Equity Note [Abstract]

Stockholders' Equity

Note 10. Stockholders’ Equity

As of December 31, 2021 and 2020, 1,350,000,000 shares, $0.0001 par value per share are authorized, of which, 1,000,000,000 shares are designated as Class A Common Stock, 250,000,000 shares are designated as Class B Common Stock, and 100,000,000 shares are designated as Preferred Stock.

Common Stock

Holders of the common stock are entitled to dividends when, as, and if, declared by the Board, subject to the rights of the holders of all classes of stock outstanding having priority rights to dividends. As of December 31, 2021, the Company had not declared any dividends. The holder of each share of Class A Common Stock is entitled to one vote, and the holder of each share of Class B Common Stock is entitled to ten votes.

In March 2021, the Company completed an underwritten public offering of shares of its Class A Common Stock and issued 11,960,000 shares for an aggregate purchase price of $462.9 million, net of issuance costs of $15.5 million (the “March 2021 Public Offering”).

Legacy QuantumScape Series F Convertible Preferred Stock

As further described in Note 5 (Fair Value), in May 2020 and September 2020, Legacy QuantumScape and VGA entered into a Series F Preferred Stock Purchase Agreement and related agreements and amendments thereto, and in August 2020, Legacy QuantumScape and several new and existing investors entered into Series F Preferred Stock Purchase Agreements and related agreements thereto, pursuant to which Legacy QuantumScape agreed to sell, and VGA and other investors agreed to purchase, up to an aggregate 14,684,843 shares of Legacy QuantumScape Series F Preferred Stock at $26.4218 per share for an aggregate purchase price of $388 million (together with the Series F Closing Agreement below, the “Series F Preferred Stock Purchase Agreements”). The Series F Preferred Stock Purchase Agreement with VGA, as amended, contains provisions pursuant to which, if the relevant closing of such Series F Preferred Stock Purchase Agreement (in whole or in part) occurred only after effectiveness of the Business Combination, VGA agreed to purchase, and Kensington agreed to issue, instead of the relevant number of shares of Series F Preferred Stock to be purchased at such closing, such number of shares of Class A Common Stock as would have been issued in the Business Combination in exchange for such shares of Legacy QuantumScape Series F Preferred Stock if they had been outstanding prior to the Business Combination.

Pursuant to the terms of the Series F Preferred Stock Purchase Agreements Legacy QuantumScape issued 7,115,335 shares of Series F Preferred Stock for an aggregate purchase price of $188.0 million, net of issuance costs of $11.5 million, concurrent with the closing of the Business Combination, and the Company issued 15,221,334 shares of Class A Common Stock to VGA for $100.0 million on December 1, 2020. On March 30, 2021, the Company, Legacy QuantumScape, and VGA entered into a Series F Closing Agreement for the Company to issue to VGA an additional 15,221,334 shares of Class A Common Stock for $100.0 million based on the Company’s achievement of the specified technical milestone. The Company received the $100.0 million on April 28, 2021 pursuant to this technical milestone achievement and issued the additional 15,221,334 shares of Class A Common Stock. This represented the second and final closing pursuant to the Series F Preferred Stock Purchase Agreements.

The Company concluded that the firm commitment to issue the tranche shares to VGA and the other investors met the definition of a freestanding financial instrument (as described in Note 5). Prior to the Business Combination, as the underlying convertible preferred shares of the outstanding tranche liabilities were redeemable outside the control of the Company, the fair value of the tranche liabilities was reported on the Legacy QuantumScape’s balance sheets as a long-term liability, and the change in fair value of $347.1 million was recorded in the Consolidated Statements of Operations and Comprehensive Loss for the year ended December 31, 2020. Upon consummation of the Business Combination, the tranche liabilities were reclassified to additional paid-in capital. Therefore, there was no further adjustment to the fair value of the liability subsequent to the year ended December 31, 2020.

Equity Incentive Plans

Prior to the Business Combination, the Company maintained its 2010 Equity Incentive Plan (the "2010 Plan"), under which the Company granted options and restricted share units to purchase or directly issue shares of common stock to employees, directors, and non-employees.

Upon the Closing, awards under the 2010 Plan were converted at the Exchange Ratio and assumed into the 2020 Equity Incentive Award Plan (the "2020 Plan", and together with the 2010 Plan, the "Plans"). The 2020 Plan permits the granting of awards in the form of incentive stock options, nonqualified stock options, stock appreciation rights, restricted shares, restricted share units and performance awards to employees, directors, and non-employees.

As of December 31, 2021, 41,500,000 shares of Class A Common Stock are authorized for issuance pursuant to awards under the 2020 Plan, plus any shares of Class A Common Stock subject to stock options, restricted stock units or other awards that were assumed in the Business Combination and terminate as a result of being unexercised or are forfeited or repurchased by the Company, with the maximum

number of shares to be added to the 2020 Plan equal to 69,846,580 shares of Class A Common Stock. As of December 31, 2021, 24,581,012 shares of Class A Common Stock are reserved and available for future issuance under the 2020 Plan.

Options may be granted at a price per share not less than 100% of the fair market value at the date of grant. If the option is granted to a 10% stockholder, then the purchase or exercise price per share shall not be less than 110% of the fair market value per share of the common stock on the grant date. Options granted generally vest over a period of four years and have ten-year contractual terms.

Stock Options

Stock option activity under the Plans, including the EPA Program discussed below is as follows:

	Number of Shares Outstanding			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Intrinsic value (in thousands)
Balance as of December 31, 2020		55,316,336		$	1.62		5.77
Granted(1)		14,698,477			23.04
Cancelled and forfeited		(382,644	)		2.34
Exercised		(16,553,721	)		0.98
Balance as of December 31, 2021		53,078,448		$	7.74		6.78	$	779,369
Vested and expected to vest as of December 31, 2021(2)		44,259,358		$	4.69		6.15	$	779,369
Vested and exercisable as of December 31, 2021		31,152,764		$	1.54		5.02	$	643,355

(1) All options granted during the year ended December 31, 2021, were granted pursuant to the EPA Program.

(2) This includes 5.9 million options granted pursuant to the EPA Program that are currently expected to vest. None of the options granted pursuant to the EPA Program were vested and exercisable as of December 31, 2021.

Options with a weighted average fair value of $20.58 per share and $2.67 per share were granted during the years ended December 31, 2021 and 2020, respectively.

The aggregate intrinsic value of options exercised during the years ended December 31, 2021 and 2020 was $489.7 million and $3.5 million, respectively.

Additional information regarding options outstanding at December 31, 2021, is as follows:

Range of Exercise Price per Share	Number of Options Outstanding		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)
$0.46 - $0.64		3,461,722	$	0.63		1.30
$1.05 - $1.35		20,973,612		1.28		4.79
$2.38		11,320,401		2.38		7.57
$6.23		2,624,236		6.23		8.68
23.04		14,698,477		23.04		9.96
		53,078,448	$	7.74		6.78

Stock-based compensation expense is based on the grant-date fair value. The Company recognizes compensation expense for awards with only service conditions on a straight-line basis over the requisite service period of the awards, which is generally the option vesting term of four years.

Excluding options granted pursuant to the EPA Program, as of December 31, 2021, the Company had stock-based compensation of $13.5 million related to unvested stock options not yet recognized that are expected to be recognized over an estimated weighted average period of 2.3 years.

The following weighted average assumptions were used as inputs to the Monte Carlo simulation in determining the estimated grant-date fair value of the Company’s stock options for the year ended December 31, 2021:

	Year Ended December 31,
	2021
Volatility		112.49	%
Risk-free interest rate		1.44	%
Expected dividend		—
Cost of equity		11.66	%
Weighted average fair value at grant date	$	20.58

All options granted during the year ended December 31, 2021, were granted pursuant the EPA Program and were valued using a Monte Carlo simulation. The Monte Carlo simulation used in the valuation of the options required the Company to make assumptions and judgements about the variables used in the calculation including the expected term, volatility of the Company's common stock and cost of equity. The Company estimated expected term based on the midpoint between the time of vesting and the remaining time to expiration of the option. Given the limited market trading history of the Company's common stock, volatility is based on a weighted blend of (i) the average volatility of peer companies within the automotive and energy storage industries multiplied by a ratio of the Company's volatility based on available stock price data as compared to the average volatility of the Company's peers over the same period and (ii) our implied volatility from exchange traded options. Cost of equity is calculated using (i) risk-free rate, (ii) average peer group market beta and (iii) the market-risk premium.

The following weighted average assumptions were used as inputs to the Black-Scholes Option Pricing Model in determining the estimated grant-date fair value of the Company’s stock options for the years ended December 31, 2020 and 2019:

	Year Ended December 31,
	2020			2019
Volatility		70.00	%		70.00	%
Risk-free interest rate		0.39	%		1.92	%
Expected term (in years)		6.08			6.02
Expected dividend		—			—
Weighted average fair value at grant date	$	2.67		$	1.50

For options granted with only service conditions, the Company uses the simplified calculation of the expected life for the valuation of options, which takes into consideration the grant’s contractual life and vesting period and assumes that all options will be exercised between the vesting date and the contractual term of the option. Given the lack of a public market for the Company’s common stock prior to the Business Combination and the Company's minimal history as a public company subsequent to the Business Combination, the estimate for volatility is based on an average of the historical volatilities of the common stock of several entities with characteristics similar to those of the Company. Since these comparable companies operate in the same industry segment, the Company expects that it would share similar characteristics, such as risks profiles, volatility, capital intensity, clientele, and market growth patterns and drivers. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected life of the option.

EPA Program

In December 2021, the Company granted stock options for the purchase of an aggregate of approximately 14.7 million shares of the Company's Class A common stock to the Company's Chief Executive Officer and other members of the Company’s management team pursuant to the EPA Program that was approved by the Company's stockholders in December 2021. There are 2.1 million remaining shares that may be granted under the EPA Program within the one-year anniversary of the initial grant. The EPA Program consists of five equal tranches (each a “Tranche”) if the Company meets certain stock price targets (market conditions) and business milestones (performance conditions).

Business Milestones

The compensation committee of the Board selected the following eleven business milestones for the EPA Program, of which one milestone must be achieved for each tranche.

•Delivery of an A-sample battery cell that meets specifications agreed upon with an automaker

•The validation by an auto maker of a completed B-sample battery cell (a B-sample battery cell is a functional, complete battery cell prototype produced from our pre-pilot or sample production line)

•Delivery of at least 1-gigawatt hour (GWh) of battery cells to a single customer

•Delivery of at least 3-gigawatt hour (GWh) of battery cells to each of three or more customers, with at least one of such customer being an auto maker

•$5 billion in GAAP revenue over a period of trailing four quarters

•$10 billion in GAAP revenue over a period of trailing four quarters

•Total cumulative battery cell production of 500 GWh

•Total cumulative battery cell production of 1,000 GWh

•Adjusted EBITDA margin of at least 25% over four consecutive quarters

•10% of worldwide market share in automotive battery cells (excluding China)

•20% of worldwide market share in automotive battery cells (excluding China)

Once a business milestone has been achieved, that business milestone will be considered achieved, even if later the Company does not maintain performance at that level.

Stock Price Targets

The stock price targets of the five tranches of the EPA Program are $60, $120, $180, $240 and $300.

To meet the stock price targets, the stock price must be sustained and not merely momentarily achieved. Except in the case of a change in control, the Company’s stock price for the purposes of assessing the stock price target will be the 120-day trailing average closing price (based on trading days), but a stock price target will not be achieved unless the trailing average closing price of the last 30 trading days of such 120-trading day period also meets or exceeds the applicable stock price target. For a stock price target for any given Tranche to be achieved, the last day of the 120-day measurement period must occur on or after the date that the requisite number of business milestones have been achieved for such Tranche.

Vesting Tranches

Each of the five Tranches vest only if the Company achieves one of the business milestones (in addition to the business milestones already achieved in a prior Tranche) and achieves the applicable stock price target on or after the business milestone is achieved, within 10 years of the initial grants. Additionally, in order to vest in any Tranche, Participants generally must continue to provide service through the date of vesting in the same position, or a similar or higher role, as when the EPA Program awards are granted.

Tranche	Business Milestone Requirement	Stock Price Target
1	Achievement of 1 business milestone	$60
2	Achievement of 2 business milestones (inclusive of the business milestone applicable to Tranche 1)	$120
3	Achievement of 3 business milestones (inclusive of the business milestone applicable to Tranche 2)	$180
4	Achievement of 4 business milestones (inclusive of the business milestone applicable to Tranche 3)	$240
5	Achievement of 5 business milestones (inclusive of the business milestone applicable to Tranche 4)	$300

Change in Control

In the event of a change in control of the Company, a portion of the EPA Program awards may also be eligible to vest; in such event, the business milestone requirement will not be applicable and the Company’s stock price for the purposes of the stock price targets will be the price per share paid in such change in control. In the event that the Company’s stock price by this measure falls between two stock price targets, linear interpolation between the two applicable stock price targets will be used to determine an additional portion of the EPA Program awards that will vest. Any portion of an EPA Program award that is not vested upon and after giving effect to a change in control will terminate.

The Company accounts for the compensation expense associated with each tranche when it determines that achievement of a related business milestone is considered probable. As of December 31, 2021, the Company determined two tranches were considered probable.

For the years ended December 31, 2021, the Company recorded stock-based compensation expense of $2.4 million related to the EPA Program. As of December 31, 2021, the Company had approximately $117.2 million of total unrecognized stock-based compensation expense for the business milestones currently considered probable of achievement, which will be recognized over an estimated weighted-average period of 2.4 years. As of December 31, 2021, the Company had approximately $182.8 million of total unrecognized stock-based compensation expense for the business milestones currently considered not probable of achievement.

Restricted Stock Units

Restricted stock unit activity under the Plans are as follows:

	Number of Restricted Stock Units			Weighted Average grant date fair value
Balance as of December 31, 2019		—		$	—
Granted		13,913,076			8.94
Balance as of December 31, 2020		13,913,076		$	8.94
Granted		2,082,456			30.28
Vested		(5,026,961	)		6.00
Forfeited		(413,756	)		10.97
Balance as of December 31, 2021		10,554,815		$	14.48

The fair value of restricted stock units which vested during the year ended December 31, 2021 was $198.0 million. No restricted stock units vested during the year ended December 31, 2020.

As of December 31, 2021, unrecognized compensation costs related to restricted stock units was $134.4 million and is expected to be recognized over a weighted average period of 2.9 years.

Stock-Based Compensation Expense

Total stock-based compensation expense recognized in the accompanying Consolidated Statements of Operations and Comprehensive Loss for all equity awards is as follows (amounts in thousands):

	Year Ended December 31,
	2021		2020		2019
Research and development	$	29,653	$	9,889	$	4,115
General and administrative		22,522		7,135		2,696
Total stock-based compensation expense	$	52,175	$	17,024	$	6,811