Solid Power, Inc. (SLDP)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the consolidated financial statements and related notes thereto included elsewhere in this Report. The following discussion contains forward-looking statements that reflect future plans, estimates, beliefs, and expected performance. For additional discussion, see “Cautionary Note Regarding Forward-Looking Statements” above. 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

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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. Risk Factors,” as such descriptions may be updated or amended in future filings we make with the SEC. Unless indicated otherwise, the following discussion and analysis of financial condition and results of operations should be read in conjunction with the consolidated statements and notes thereto in this Report. 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.

Overview

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 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 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. The market for new energy vehicles is still rapidly evolving due to emerging technologies, competitive pricing, government regulation and industry standards, and changing consumer demands and behaviors.

Basis of Presentation

We currently conduct our business through one operating segment. 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. dollars.

Results of Operations

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.

Revenue

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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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.

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Operating Expenses

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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.

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Nonoperating Income and Expense

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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.

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Liquidity and Capital Resources

Sources of Liquidity

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:

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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.

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Short-Term Liquidity Requirements

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. 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. We also may opportunistically seek to enhance our liquidity through equity or debt financing, if such financing becomes available to us on terms that we consider favorable. If financing is not available, or if the terms of financing are less desirable than we expect, we may be forced to take actions to reduce our capital or operating expenditures, which may adversely affect our development, business, operating results, financial condition and prospects.

Stock Repurchase Program

On January 23, 2024, we announced that our Board approved a stock repurchase program authorizing us to purchase up to $50 million of our outstanding common stock. 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 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.

Cash Flows

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

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Cash used in operating activities:

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) 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

We are not a party to any off-balance sheet arrangements, as defined under SEC rules.

Critical Accounting Estimates

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. We base our estimates on past experience, technical analysis and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. Actual results may differ from those estimates.

Our critical accounting estimates are those that materially affect our financial statements and involve difficult, subjective, or complex judgments by management. A thorough understanding of these critical accounting estimates is essential when reviewing our financial statements. We believe that the critical accounting estimates listed below involve the most difficult management decisions because they require the use of significant estimates and assumptions as described above.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the consolidated financial statements and related notes thereto included elsewhere in this Report. The following discussion contains forward-looking statements that reflect future plans, estimates, beliefs, and expected performance. For additional discussion, see “Cautionary Note Regarding Forward-Looking Statements” above. 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. 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. Risk Factors,” as such descriptions may be updated or amended in future filings we make with the SEC. Unless indicated otherwise, the following discussion and analysis of financial condition and results of operations should be read in conjunction with the consolidated statements and notes thereto in this Report. 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.

Overview

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.

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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.”

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. 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.

In addition to meeting our development goals, commercialization and future growth and demand for our products are highly dependent upon consumers adopting EVs. The market for new energy vehicles is still rapidly evolving due to emerging technologies, competitive pricing, government regulation and industry standards, and changing consumer demands and behaviors.

Basis of Presentation

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. dollars.

Results of Operations

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

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NM = Not meaningful

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

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:

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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.

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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. To the extent that our resources are insufficient to satisfy our cash requirements, we may need to seek additional equity or debt financing. We also may opportunistically seek to enhance our liquidity through equity or debt financing, if such financing becomes available to us on terms that we consider favorable. If financing is not available, or if the terms of financing are less desirable than we expect, we may be forced to take actions to reduce our capital or operating expenditures, which may adversely affect our development, business, operating results, financial condition and prospects.

Stock Repurchase Program

On January 23, 2024, we announced that our Board approved a stock repurchase program authorizing us to purchase up to $50 million of our outstanding common stock. 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. 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.

Cash Flows

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

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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.

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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.

Off-Balance Sheet Arrangements

We are not a party to any off-balance sheet arrangements, as defined under SEC rules.

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. 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. We base our estimates on past experience, technical analysis and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. Actual results may differ from those estimates.

Our critical accounting estimates are those that materially affect our financial statements and involve difficult, subjective, or complex judgments by management. A thorough understanding of these critical accounting estimates is essential when reviewing our financial statements. We believe that the critical accounting estimates listed below involve the most difficult management decisions because they require the use of significant estimates and assumptions as described above.

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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.

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Research and Development

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the consolidated financial statements and related notes thereto included elsewhere in this Report. The following discussion contains forward-looking statements that reflect future plans, estimates, beliefs, and expected performance. For additional discussion, see “Special Note Regarding Forward-Looking Statements” above. 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. 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, particularly in “Risk Factors.” 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.

Overview

We are developing solid state battery technologies to enable the next generation of rechargeable batteries for the fast-growing EV and other markets.

Our core technology is our proprietary sulfide-based solid electrolyte material, which replaces the liquid or gel electrolyte used in conventional lithium-ion batteries. We believe that our electrolyte material can enable extended driving range, longer battery life, improved safety, and lower costs compared to conventional lithium-ion.

We also are designing and developing solid state cells that utilize our electrolyte in the cathode, anode, and separator layers. We currently produce 0.2 Ah, 2 Ah, 20 Ah, and EV cells on two pilot lines using established manufacturing processes. In 2022, we installed our EV line, which allows us to produce EV cells between 60 Ah and 100 Ah. The EV line is designed to produce cells as part of the automotive qualification process and for vehicle integration demonstration purposes.

We have partnered with industry leaders, including Ford, BMW, and SK On. We are working closely with each of these partners to refine and validate our cell designs and electrolyte material with the ultimate goal to commercialize our technologies. Our business model – selling our electrolyte to cell manufacturers and licensing our cell designs and manufacturing processes – distinguishes us from many of our competitors who plan to be commercial battery manufacturers. Ultimately, we endeavor to be a leading producer and distributor of sulfide-based solid electrolyte material for powering both EVs and other applications. Since we do not intend to commercially produce battery cells, we expect to invest less than other development-stage battery companies that plan to commercially manufacture their own cell designs and construct battery production facilities.

The products we currently make are in the development stage and require continued development and validation before we can commercialize either our electrolyte or cell technology.

The Business Combination

The business combination was accounted for as a reverse recapitalization, in accordance with GAAP. Under this method of accounting, DCRC was treated as the “acquired” company for financial reporting purposes. Accordingly, the business combination was treated as the equivalent of Legacy Solid Power issuing stock for the net assets of DCRC, accompanied by a recapitalization, whereby no goodwill or other intangible assets was recorded. Operations prior to the business combination are those of Legacy Solid Power. While DCRC was the legal acquirer, because Legacy Solid Power was deemed the accounting acquirer, the historical financial statements of Legacy Solid Power became the historical financial statements of the combined company upon the consummation of the business combination.

As a result of the business combination, we became a Nasdaq-listed company, which will require that we continue to hire additional personnel and implement procedures and processes to address public company regulatory requirements and customary practices. We expect to incur additional annual expenses as a public company for, among other things, directors’ and officers’ liability insurance, director fees, additional internal and external accounting, legal, administrative resources, and increased audit, compliance, and legal fees.

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Our results of operations and statements of assets and liabilities may not be comparable between periods as a result of the business combination.

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 “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements,” appearing in this Report, which are incorporated by reference.

Prior to reaching commercialization, we must test and validate our products to ensure they meet the performance and safety requirements of our customers. We also will have 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. 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 research and development performance on government contracts and research and development licensing activities. We have and are deploying substantial capital to expand our production capabilities and engage in research and development programs. We also expect to incur significantly more administrative expenses as a publicly traded company than we did previously.

In addition to meeting our development goals, commercialization, and future growth and demand for our products is highly dependent upon consumers adopting EVs. The market for new energy vehicles is still rapidly evolving due to emerging technologies, competitive pricing, government regulation and industry standards, and changing consumer demands and behaviors.

Basis of Presentation

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. dollars.

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Results of Operations

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

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NM = Not meaningful

The key factors driving our 2022 increase in operating loss were as follows:

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NM = Not meaningful

The key factors driving our 2021 increase in operating loss were as follows:

Liquidity and Capital Resources

Sources of Liquidity

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

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As of December 31, 2022 and 2021, we had $496.1, and $589.3 million of total liquidity, respectively, as set forth below:

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Short-Term Liquidity Requirements

We anticipate that our most significant capital expenditures in 2023 will relate to finishing construction of our electrolyte facility, and enhancing production capabilities at this facility and our cell manufacturing lines. In addition, our short-term liquidity requirements include operating and capital expenses needed to further our development programs and to optimize our pilot production lines and electrolyte manufacturing capabilities. We expect to fund our short-term liquidity requirements through our cash on hand and other liquid assets.

We anticipate our total combined capital and operational expenditures for 2023 will be between $50 million and $60 million, which includes approximately $1.45 million for the payment of contractual cash obligations as of December 31, 2022, primarily related to payments for operating leases.

Long-Term Liquidity Requirements

We believe that our cash on hand is sufficient to meet our operating cash needs (including expenditures for the increased pace and scope of development as well as increased public company costs), 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 may, however, need additional cash if there are material changes to our business conditions or other developments, including changes to our operating plan, development progress, delays in negotiations with OEMs, cell manufacturers or other suppliers, market adoption of EVs, supply chain challenges, competitive pressures, inflation, and regulatory developments. To the extent that our resources are insufficient to satisfy our cash requirements, we may need to seek additional equity or debt financing. We also may opportunistically seek to enhance our liquidity through equity or debt financing, if such financing becomes available to us on terms that we consider favorable. If the financing is not available, or if the terms of financing are less desirable than we expect, we may be forced to take actions to reduce our capital or operating expenditures, which may adversely affect our development, business, operating results, financial condition and prospects.

Our cash investment policy is designed to provide flexibility in investment options. Our investment policy is designed primarily to maintain adequate liquidity to fund future operations, research and development, and anticipated capital expenditures, with a secondary goal to maximize yield on cash not required to be liquid for near term operations.

Cash Flows

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

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Cash flows used in operating activities:

Cash used in operating activities increased from 2021 to 2022 primarily attributable to our operating loss, which was driven by continued increase in research and development costs and general and administrative expenses. We continue to expect cash flows used in operating activities to increase as we accelerate both the pace and scope of our development efforts, and work to achieve commercialization of our products. We continue to anticipate increased expenditures for general and administrative functions in connection with our status as a public company and to support growth of our development efforts.

Cash used in operating activities increased from 2020 to 2021. This increase in cash use was primarily attributable to our operating loss related to similar increases in research and development costs and general and administrative expenses.

Cash flows used in investing activities:

Cash used in investing activities increased from 2021 to 2022 primarily due to capital expenditures, investments in patents, and the net effect of the purchase and sales of marketable securities. Capital expenditures were primarily for custom manufacturing equipment in connection with our expansion of electrolyte production capabilities and installation of our EV line. We continue to expect cash used in investing activities to increase as we finalize the build out of our electrolyte production facility and increase its production capabilities, and as we increase our electrolyte production scale. Each of our locations will continue to require investment in specialized equipment to facilitate the manufacturing process of our electrolyte material and battery cells. As our production processes are scaled in the future, especially with respect to our electrolyte material, we expect capital expenditures to increase.

Cash used in investing activities increased from 2020 to 2021 due to increases in capital expenditures and purchases of marketable securities in 2021. Capital expenditures were primarily for custom manufacturing equipment in connection with our expansion of electrolyte production.

Cash flows provided by financing activities:

Net cash provided by financing activities for the year ended December 31, 2022 was primarily from the cash exercise of stock options. Net cash provided by financing activities for the year ended December 31, 2021 were primarily the proceeds from the business combination and the Series B Financing. Net cash provided by financing activities for the year ended December 31, 2020 were primarily from the sale of convertible notes and proceeds from a bank term loan, which was retired in December of 2021.

Off-Balance Sheet Arrangements

We are not a party to any off-balance sheet arrangements, as defined under SEC rules.

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. 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. We base our estimates on past experience, technical analysis and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. Actual results may differ from those estimates.

Our critical accounting estimates are those that materially affect our financial statements and involve difficult, subjective, or complex judgments by management. A thorough understanding of these critical accounting estimates is essential when reviewing our financial statements. We believe that the critical accounting estimates listed below involve the most difficult management decisions because they require the use of significant estimates and assumptions as described above.

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Research and Development

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the consolidated financial statements and related notes thereto included elsewhere in this Report. The following discussion contains forward-looking statements that reflect future plans, estimates, beliefs, and expected performance. For additional discussion, see “Special Note Regarding Forward-Looking Statements” above. 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. 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, particularly in “Risk Factors.” 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.

Overview

Solid Power is developing all-solid-state battery cell technology that replaces the liquid or gel polymer electrolyte used in conventional lithium-ion battery cells with a sulfide-based solid electrolyte. Our sole focus is on the development and commercialization of all-solid-state battery cells and solid electrolyte materials, which we are currently developing for the fast-growing battery-powered electric vehicle market.

Our All-Solid-State Platform is designed to meet the performance and cost demands from both consumers and automotive OEMs and outperform the best performing liquid or gel electrolyte-based lithium-ion technologies of today and tomorrow. We are developing our all-solid-state battery cell technology with the goal to improve, among other things, driving range, battery life, safety, and cost.

We are currently producing 0.2, 2, and 20 Ah Silicon EV Cells using established manufacturing processes on our pilot production line. We have partnered with industry leaders, such as Ford, BMW, and SK Innovation, to further refine and validate our all-solid-state cell designs and the sulfide-based solid electrolyte we manufacture at our headquarters in Louisville, Colorado.

Our business model – licensing our all-solid-state cell designs to top tier cell manufacturers and selling our electrolyte for solid-state cell development – allows for multiple revenue streams and distinguishes us from our competition. By not needing to construct capital intensive gigafactories, we believe we can be “capital light” compared to other development-stage battery companies that plan to produce their battery designs in-house. Please see “Business” above for a more thorough discussion of our business.

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The Business Combination

The business combination was accounted for as a reverse recapitalization, in accordance with GAAP. Under this method of accounting, DCRC was treated as the “acquired” company for financial reporting purposes. Accordingly, the business combination was treated as the equivalent of Legacy Solid Power issuing stock for the net assets of DCRC, accompanied by a recapitalization, whereby no goodwill or other intangible assets was recorded. Operations prior to the business combination are those of Legacy Solid Power. While DCRC was the legal acquirer, because Legacy Solid Power was deemed the accounting acquirer, the historical financial statements of Legacy Solid Power became the historical financial statements of the combined company upon the consummation of the business combination.

As a result of the business combination, we became a Nasdaq-listed company, which will require that we continue to hire additional personnel and implement procedures and processes to address public company regulatory requirements and customary practices. We expect to incur additional annual expenses as a public company for, among other things, directors’ and officers’ liability insurance, director fees, and additional internal and external accounting, legal, and administrative resources, including increased audit, compliance, and legal fees.

Our results of operations and statements of assets and liabilities may not be comparable between periods as a result of the business combination.

Key Factors Affecting Operating Results

We are a research and development-stage company, with the goal to reach commercialization of our all-solid-state battery cells and sulfide-based electrolyte by 2028. We believe that our performance and future success depend on several factors that present significant opportunities for us but also pose significant risks and challenges, including those discussed in “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements,” appearing in this Report, which are incorporated by reference.

Specifically, the success of our business is dependent upon our ability to successfully develop and commercialize our products, which will require significant capital and subject us to regulatory oversight. Prior to reaching commercialization, we must test and validate our products to ensure they meet the performance and safety requirements of our customers. We also will have to negotiate licensing and supply contracts with our customers on terms and conditions that are mutually acceptable. We also will need to scale production of our sulfide-based solid electrolyte material to satisfy anticipated demand. All of these factors will take time and affect our operating results, and, since many are difficult to quantify, our actual operating results may be different than we currently anticipate.

In addition to meeting our development goals on the expected timeline, future growth and demand for our products is highly dependent upon consumers adopting electric vehicles. The market for new energy vehicles is still rapidly evolving, characterized by rapidly changing technologies, competitive pricing and factors, evolving government regulation and industry standards, and changing consumer demands and behaviors. For more information, please see “Business” above.

As a development-stage company, we have not yet generated significant revenues through production of our electrolyte material or all-solid-state battery cell designs. Our revenue generated to date has primarily come from research and development performance on government contracts. We anticipate deploying substantial capital to expand our sulfide-based electrolyte production, to install our EV Line, and in connection with research and development programs. These expenditures are needed to further development of our products and overall business. We also expect to incur significantly more administrative expenses as a publicly traded company than we did previously. For additional information, see “Liquidity and Capital Resources,” and “Results of Operations.”

COVID-19

The COVID-19 pandemic has disrupted supply chains and affected production and sales across a range of industries. The long-term extent of the impact of COVID-19 on our operational and financial performance will depend on certain developments, including the duration and spread of the virus, mutations in the virus, vaccine distribution and uptake and the impact on our customers, employees, and vendors. The ultimate outcome of these matters is uncertain and, accordingly, the impact on our financial condition or results of operations is also uncertain. While the COVID-19 pandemic has presented challenges to our business, including having to

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devote additional time to managing our supply chain, having personnel out sick, implementing social distancing measures, and requiring certain employees to work from home in order to reduce office density, to date, we have not materially altered any terms with our contractors, suppliers, customers, other business partners or financing sources as a result of the COVID-19 pandemic.

Basis of Presentation

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. dollars.

Results of Operations

Comparison of the Year Ended December 31, 2021 to the Year Ended December 31, 2020

The following table sets forth our historical operating results for the periods indicated:

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NM = Not meaningful

The key factors driving our 2021 increase in operating loss were as follows:

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Liquidity and Capital Resources

Sources of Liquidity

Our sources of cash are primarily derived from the sale of equity, including the Series B Financing and the business combination, with a small portion coming from performance on government contracts and commercial revenues. As discussed further below, we expect our sources of liquidity and cash flows will be sufficient to fund ongoing operations, research and development efforts, and to meet our anticipated capital expenditure needs.

Short-Term Liquidity Requirements

As of the date of this Report, we have yet to generate material revenue from our principal business activities. As of December 31, 2021, we had $513 million of cash and cash equivalents, $76 million of marketable securities, and our current liabilities were $8.4 million, primarily comprised of accounts payable, accrued compensation, and other accrued liabilities.

We anticipate that our most significant capital expenditures in 2022 will relate to construction of our second production facility in Thornton, Colorado. The purpose of this facility is to scale production of our sulfide-based solid electrolyte to feed our EV Line. We expect to begin producing our sulfide-based solid electrolyte from this facility in the second half of 2022.

We also expect to invest significant capital in 2022 in connection with the installation of our EV Line at our Louisville, Colorado headquarters. The EV Line is designed to produce EV-scale all-solid-state battery cells as part of the automotive qualification process, which we expect to enter in late 2022. We expect the EV Line will be operational in the third quarter of 2022.

We anticipate our total combined capital and operational expenditures for 2022 will be between $150 million and $170 million.

Long-Term Liquidity Requirements

We believe that our cash on hand is sufficient to meet our operating cash needs (including expenditures for the increased pace and scope of development as well as increased public company costs), 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 may, however, need additional cash if there are material changes to our business conditions or other developments, including changes to our operating plan, unanticipated delays in negotiations with OEMs and tier-one automotive suppliers or other

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suppliers, supply chain challenges, disruptions due to the COVID-19 pandemic, competitive pressures, and regulatory developments. To the extent that our resources are insufficient to satisfy our cash requirements, we may need to seek additional equity or debt financing. If the financing is not available, or if the terms of financing are less desirable than we expect, we may be forced to take actions to reduce our capital or operating expenditures, including by not seeking potential acquisition opportunities, or reducing or delaying our production facility expansions, which may adversely affect our business, operating results, financial condition and prospects. For more information about risks related to our business, please see “Risk Factors.”

In January 2022, we updated our investment policy to provide greater flexibility in investment options. We designed our revised investment policy primarily to maintain adequate liquidity to fund future operations, research and development, and anticipated capital expenditures, with a secondary goal to maximize yield on cash not required to be liquid for near term operations. To reduce the risk of economic, supply chain, and operational disruptions during the COVID-19 pandemic, we have allocated a sufficient portion of capital to serve as reserve cash.

Cash Flows

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

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Cash flows used in operating activities:

Cash used in operating activities increased by $15.4 million from 2020 to 2021. This increase in cash use was primarily attributable to our operating loss of $26.5 million in 2021, compared to operating loss of $11.6 million in 2020. The increase was primarily attributable to an increase in research and development costs as well as increased general and administrative expense due to increased headcount. We expect cash flows used in operating activities to continue to increase as we continue to accelerate both the pace and scope of our development efforts, and work to achieve commercialization of our products. We also anticipate increased expenditures for general and administrative functions in connection with our status as a public company.

Cash flows used in investing activities:

Cash used in investing activities increased by $88 million from 2020 to 2021. This increase is due to capital expenditures of $12.6 million and purchase of marketable securities of $76 million in 2021. Capital expenditures were primarily for custom manufacturing equipment in connection with our planned expansion of electrolyte production. We expect cash used in investing activities to increase in 2022 and 2023 as we build out our second production facility and install our EV Line. Each location will require investment in specialized equipment to facilitate the manufacturing process of sulfide-based solid electrolyte and our all-solid-state battery cells, respectively. We expect capital expenditures to increase as our production processes are scaled in the future, especially with respect to our sulfide-based solid electrolyte.

Cash flows provided by financing activities:

Through December 31, 2021, we have financed our operations through proceeds from a bank term loan, and the sales of convertible notes, redeemable convertible preferred stock, and the business combination. We retired the bank term loan in December 2021. Net cash provided by financing activities increased by $617.4 million from 2020 to 2021. This increase is attributable to net proceeds of $135.6 million from the Series B Financing, and net proceeds of $495.4 million from the business combination in 2021.

Off-Balance Sheet Arrangements

We are not a party to any off-balance sheet arrangements, as defined under SEC rules.

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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. 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. We base our estimates on past experience, technical analysis and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. Actual results may differ from those estimates.

Our critical accounting policies are those that materially affect our financial statements and involve difficult, subjective, or complex judgments by management. A thorough understanding of these critical accounting policies is essential when reviewing our financial statements. We believe that the critical accounting policies listed below involve the most difficult management decisions because they require the use of significant estimates and assumptions as described above.

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Emerging Growth Company Status

We are an emerging growth company as defined in Section 2(a) of the Securities Act and have elected to take advantage of the benefits of the extended transition period for new or revised financial accounting standards. We expect to remain an emerging growth company at least through the end of the 2022 fiscal year and expect to continue to take advantage of the benefits of the extended transition period, although we may decide to early adopt such new or revised accounting standards to the extent permitted by such standards. This may make it difficult or impossible to compare our financial results with the financial results of another public company that is either not an emerging growth company or is an emerging growth company that has chosen not to take advantage of the extended transition period exemptions because of the potential differences in accounting standards used.

Recent Accounting Pronouncements

See Note 2 to our audited financial statements, which are incorporated by reference, for more information.

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