Fair Value Measurements

9 Months Ended

Sep. 30, 2022

Fair Value Measurements

Fair Value Measurements

Note 8 – Fair Value Measurements

The carrying amounts of certain financial instruments, such as cash equivalents, short-term investments, accounts receivable, accounts payable, accrued liabilities, and equipment notes payable approximate fair value due to their short maturities.

The fair value of debt instruments for which the Company has not elected fair value accounting is based on the present value of expected future cash flows and assumptions about the then-current market interest rates as of the reporting period and the creditworthiness of the Company. The book values of the Company’s long-term debt approximate fair value because interest rates charged are similar to other financial instruments with similar terms and maturities and the rates vary in accordance with a market index. Most of the Company’s debt is carried on the condensed consolidated balance sheets on a historical cost basis net of unamortized discounts and premiums because the Company has not elected the fair value option of accounting. Changes to the inputs used in these valuation models can have a significant impact on the estimated fair value of the Convertible Promissory Notes and the Company’s embedded derivatives.

Assets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis

As discussed in Note 7, all Convertible Promissory Notes were converted to Legacy Solid Power Series B Preferred Stock in May 2021. As of September 30, 2022 and December 31, 2021 the Company’s financial liabilities measured and recorded at fair value on a recurring basis were classified within the fair value hierarchy as follows:

	September 30, 2022
	Level 1		Level 2		Level 3		Total
Assets
Commercial Paper	$	146,572	$	—	$	—	$	146,572
Corporate Bonds	$	208,824	$	—	$	—	$	208,824
Government Bonds	$	42,938	$	—	$	—	$	42,938
U.S. Treasuries	$	11,539	$	—	$	—	$	11,539
Liabilities
Public Warrants	$	12,483	$	—	$	—	$	12,483
Private Warrants	$	—	$	9,354	$	—	$	9,354

	December 31, 2021
	Level 1		Level 2		Level 3		Total
Assets
Commercial Paper	$	33,275	$	—	$	—	$	33,275
Corporate Bonds	$	39,593	$	—	$	—	$	39,593
Government Bonds	$	3,017	$	—	$	—	$	3,017
Liabilities
Public Warrants	$	26,483	$	—	$	—	$	26,483
Private Warrants	$	—	$	23,537	$	—	$	23,537

The change in fair value of the Company’s marketable securities is included in Other Comprehensive loss. There were no transfers in and out of Level 3 fair value hierarchy during the three or nine months ended September 30, 2022 and 2021.

Fair Value of Stock Warrants

The fair value of the Private Placement Warrants (defined below) has been estimated using a Black-Scholes model as of September 30, 2022 and December 31, 2021. The fair value of the Public Warrants (defined below) has been measured based on the quoted price of such warrants on the Nasdaq Stock Market, a level 1 input. The estimated fair value of the Private Placement Warrants is determined using Level 2 inputs. Inherent in a Black-Scholes model are assumptions related to expected stock-price volatility, expected life, risk-free interest rate and dividend yield. Material increases (or decreases) in any of those inputs may result in a significantly higher (or lower) fair value measurement. The Company estimates the volatility of its Private Placement Warrants based on implied volatility from the Company’s Public Warrants and from historical volatility of select peer company’s common stock that matches the expected remaining life of the warrants. The risk-free interest rate is based on the U.S. Treasury zero-coupon yield curve for a maturity similar to the expected remaining life of the warrants. The expected life of the warrants is assumed to be equivalent to their remaining contractual term. The dividend yield is based on the historical rate, which the Company anticipates remaining at zero. Refer to Note 9 for additional details on the Company’s warrant liabilities.

The following table provides quantitative information regarding Level 2 inputs used in the recurring valuation of the Private Placement Warrants as of their measurement dates:

	September 30, 2022			December 31, 2021
Exercise Price	$	11.50		$	11.50
Stock Price	$	5.26		$	8.74
Volatility		51.5	%		48.9	%
Term		4.19			4.94
Risk-free rate		4.05	%		1.24	%

The following table provides a reconciliation of the Public Warrants measured at fair value using Level 1 directly observable inputs and Private Placement Warrants measured at fair value using Level 2 directly or indirectly observable inputs:

	Public Warrants		Private Warrants
Date	Level 1 Fair Value		Level 2 Fair Value
December 31, 2021	$	2.27	$	3.07
Change in fair value		(1.20)		(1.85)
June 30, 2022		1.07		1.22
Change in fair value		—		—
September 30, 2022	$	1.07	$	1.22

The following tables provides a reconciliation of the September 30,2022 three and nine month change in fair value for the Public Warrants and Private Placement Warrants:

					Nine months change in
Warrant Class	Level	Shares	December 31, 2021		fair value		September 30, 2022
Public Warrants	1	11,666,636	$	26,483	$	(14,000)	$	12,483
Private Warrants	2	7,666,667		23,537		(14,183)		9,354
Total		19,333,303	$	50,020	$	(28,183)	$	21,837

						Three months change in
Warrant Class	Level	Shares		June 30, 2022		fair value		September 30, 2022
Public Warrants	1		11,666,636	$	12,483	$	—	$	12,483
Private Warrants	2		7,666,667		9,354		—		9,354
Total			19,333,303	$	21,837	$	—	$	21,837