Q&A about capacitors and electrolyzers

At the begin­ning of Octo­ber 2023, Smoltek’s CEO, Håkan Pers­son, talked at the one-day con­fer­ence Aktieda­gen Lund orga­nized by the Swedish Share­hold­ers’ Asso­ci­a­tion. Some of what he said is prob­a­bly known to you as a well-informed share­hold­er or investor, but there are also some insights, if not news, worth noting.

So, I sat down with Håkan to fol­low up on some points he made in his pre­sen­ta­tion. In total, we cov­ered sev­en top­ics in depth. You can read the ques­tions and answers in this post.

But before doing that, you may want to check out his presentation.

Why capacitors and electrolyzers?

In your talk, you say that Smoltek has explored many appli­ca­tion areas for its patent-pro­tect­ed tech­nol­o­gy – grow­ing car­bon nanofibers on dif­fer­ent mate­ri­als. Among all these, Smoltek has focused on decou­pling capac­i­tors and elec­trolyz­er cell mate­ri­als. Why?

We have a long list of pos­si­ble appli­ca­tions for our tech­nol­o­gy. It ranges from heat dis­si­pa­tion to biosen­sors. Many items on the list are relat­ed to semi­con­duc­tors. This is because Smoltek has grown out of research in this area at Chalmers Uni­ver­si­ty of Tech­nol­o­gy. But there is also a lot on the list that is not relat­ed to the semi­con­duc­tor industry.

To explore the oppor­tu­ni­ties out­side the semi­con­duc­tor indus­try, we formed a sep­a­rate busi­ness divi­sion, Smoltek Inno­va­tion, to iden­ti­fy an immi­nent need that we can address. Our analy­sis showed that the glob­al hydro­gen mar­ket urgent­ly needs a bet­ter elec­trolyz­er cell mate­r­i­al where we can make a big dif­fer­ence. So, we decid­ed to focus on that mar­ket, and con­se­quent­ly, we changed the name of the busi­ness divi­sion to Smoltek Hydro­gen.

Even before that, we had formed a sep­a­rate busi­ness divi­sion, Smoltek Semi, to do the same for the semi­con­duc­tor indus­try. We found that met­al-insu­la­tor-met­al (MIM) capac­i­tors, used by the semi­con­duc­tor indus­try, are a huge mar­ket where we can make a big impact.

That’s why we are pur­su­ing these two mar­kets with car­bon nanofiber-enhanced cell mate­r­i­al and car­bon nanofiber-enhanced MIM capac­i­tors, respectively.

We are focus­ing exclu­sive­ly on these two busi­ness divi­sions for now and in the fore­see­able future. But we have many more ideas on our list, so we expect to cre­ate more busi­ness divi­sions in the future. You can think of Smoltek as an incu­ba­tor for car­bon nanofiber-rein­forced solu­tions for var­i­ous applications.

Still the world’s smallest capacitor?

In 2021, Smoltek pre­sent­ed the world’s thinnest capac­i­tor as a ful­ly usable pro­to­type. In your pre­sen­ta­tion, you say Smoltek can man­u­fac­ture ultra-thin decou­pling capac­i­tors more effi­cient­ly than com­pet­ing tech­nolo­gies. Does this mean that com­peti­tors have caught up?

No, there are cur­rent­ly no thin­ner capac­i­tors on the open mar­ket than our prototype. 

But there are strong con­tenders whose capac­i­tors can also be char­ac­ter­ized as ultra-thin. These capac­i­tors are man­u­fac­tured by dig­ging deep trench­es in sil­i­con. This is why they are called deep trench­es capac­i­tors or sil­i­con capac­i­tors. They are not wide­ly used because of their costs, and we believe there is a lim­it to how far they can go.

We don’t feel com­peti­tors breath­ing down our neck because our CNF-MIM capac­i­tors have two com­pet­i­tive advan­tages over sil­i­con capacitors.

First, CNF-MIM capac­i­tors are expect­ed to be cheap­er to pro­duce, so we can com­pete on price and still have a good mar­gin for capac­i­tors aimed at high-end device segments.

Sec­ond, our capac­i­tors will have sig­nif­i­cant­ly high­er capac­i­tance per unit area and unit height.

Why the premium segment except Apple?

You men­tioned that Smoltek tar­gets the pre­mi­um seg­ment, except Apple, with its CNF-MIM capac­i­tors. Can you explain that strategy?

I talked about the pre­mi­um seg­ment of the smart­phone mar­ket. We define the seg­ment as smart­phones that 2023 cost more than 300 USD to buy from wholesalers.

There are hun­dreds of brands in this mar­ket seg­ment. The largest is Sam­sung. The best-known is Apple. But there are also oth­er big play­ers like Xiao­mi, Oppo, and Vivo, as well as well-rec­og­nized brands such as Google Pix­el and Sony Xperia.

It is this mar­ket seg­ment that we address with our CNF-MIM capac­i­tors. With one cru­cial excep­tion: Apple.

Of course, Apple knows what we are doing. But right now, we choose to focus on the rest of the pre­mi­um seg­ment because we believe Apple has a tight part­ner­ship with a capac­i­tor man­u­fac­tur­er and is not like­ly to jump ship any time soon.

Although Apple rep­re­sents one-third of the pre­mi­um seg­ment, the remain­ing mar­ket is huge. We esti­mate that the oth­er pre­mi­um smart­phone man­u­fac­tur­ers pur­chase between 3.5 and 4.5 bil­lion capac­i­tors annu­al­ly. And our goal is to cap­ture one-third of that mar­ket eventually.

We are con­sid­er­ing mak­ing smart­phones our first tar­get mar­ket because they great­ly need ultra-thin capac­i­tors. And we nar­rowed it down to the pre­mi­um seg­ment because of the high­er gross prof­it margin.

How­ev­er, the mar­ket for CNF-MIM does not end with smart­phones. We are explor­ing oth­er pos­si­bil­i­ties and have iden­ti­fied more places where our capac­i­tor tech­nol­o­gy can make a big dif­fer­ence. So, the mobile mar­ket is just the beginning.

What planning has Smoltek and Yageo initiated?

You say that Smoltek and YAGEO have start­ed plan­ning for the next step. What does that mean?

Let me start by reca­pit­u­lat­ing where we are today and where we are going.

YAGEO wants the right to sell our CNF-MIM capac­i­tors when that time comes. And we need a dis­trib­u­tor who can sell and ship our capac­i­tors to the big play­ers. We have there­fore agreed on a col­lab­o­ra­tion with two phases.

The first phase is to devel­op and pro­duce engi­neer­ing sam­ples of CNF-MIM capac­i­tors and bring them to the mar­ket. This allows poten­tial cus­tomers to test and design them into their appli­ca­tions. This phase is gov­erned by a joint devel­op­ment agree­ment (JDA) that we signed in August 2022.

The sec­ond phase is form­ing a joint ven­ture to mass-pro­duce our CNF-MIM capac­i­tors. We plan for a fab­less pro­duc­tion, which means the man­u­fac­tur­ing will be done by sub­con­trac­tors rather than in-house. Pro­duc­tion will start when we have a design-win, when some­one has designed a future prod­uct with our CNF-MIM capacitors.

Right now, we are in the first phase. We have made the first batch of just over a quar­ter of a mil­lion capac­i­tors with­out car­bon nanofibers. We are cur­rent­ly mak­ing a sim­i­lar batch, now with car­bon nanofibers. These will be test­ed and eval­u­at­ed by YAGEO, and when they meet the per­for­mance met­rics out­lined in the joint devel­op­ment agree­ment, we will enter phase 2.

In par­al­lel with the devel­op­ment of engi­neer­ing sam­ples, YAGEO and Smoltek have already begun plan­ning the next step to avoid los­ing time.

The fact that YAGEO is already pre­pared to put in the resources and do the work involved in plan­ning for phase two is an excel­lent tes­ti­mo­ni­al from YAGEO.

What is electrolyzer cell material?

Let’s switch gears and talk about the hydro­gen indus­try. Smoltek devel­ops and plans to sell elec­trolyz­er cell mate­r­i­al. What is it?

It’s a lay­er of cor­ro­sion-coat­ed car­bon nanofibers that pen­e­trates the mem­brane on the anode side. On the out­side of the met­al are atoms of iridium.

Irid­i­um is a scarce and cost­ly earth met­al used as a cat­a­lyst in a par­tic­u­lar type of elec­trolyz­er. Smoltek’s cell mate­r­i­al will use 95 per­cent less irid­i­um than exist­ing tech­nol­o­gy, thus con­serv­ing a finite resource and sav­ing vast amounts of mon­ey for pro­duc­ers of electrolyzers.

This mar­ket is mas­sive. It is not just about future ener­gy sys­tems and trans­porta­tion. There is a huge need here and now. Hydro­gen has been used in indus­try for over 100 years.

But 95 per­cent of that hydro­gen is pro­duced from fos­sil fuels. That is not sus­tain­able. There­fore, the indus­try is fac­ing a gigan­tic tran­si­tion to elec­trolyz­ers that pro­duce fos­sil-free hydro­gen. And that’s when irid­i­um is needed.

Read more about electrolyzers

Fos­sil-free hydro­gen, or green hydro­gen, is pro­duced by run­ning elec­tric­i­ty from solar, wind, or hydropow­er plants through water. This is called water elec­trol­y­sis. The appa­ra­tus in which it takes place is called an elec­trolyz­er.

There are two types of elec­trolyz­ers: an old­er type with low effi­cien­cy and uses alka­line chem­i­cals, and a new­er type that is more effi­cient and doesn’t use chem­i­cals. The new­er tech­nol­o­gy uses a pro­ton exchange mem­brane (abbre­vi­at­ed PEM), and con­se­quent­ly, it is called a PEM elec­trolyz­er.

PEM elec­trolyz­ers need irid­i­um as a cat­a­lyst. The met­al acts as a place for water mol­e­cules to hold on while they split into hydro­gen and oxygen.

And here is the crux: Irid­i­um costs many times more than gold because it’s so rare and hard to extract. In 2023, a sin­gle kilo of irid­i­um costs up to 200,000 euros; by 2030, just sev­en years from now, it is esti­mat­ed to cost up to 700,000 euros.

So even though cur­rent tech­nol­o­gy only needs 2 mil­ligrams of irid­i­um per square cen­time­ter of mem­brane, it is a sig­nif­i­cant cost for elec­trolyz­er manufacturers.

That’s the prob­lem we address with our cell material.

Smoltek’s cell mate­r­i­al cur­rent­ly uses 75 per­cent less irid­i­um than avail­able tech­nol­o­gy. And we expect to save up to 95 per­cent of irid­i­um com­pared to today’s exist­ing tech­nolo­gies. In this way, our cell mate­r­i­al con­serves a finite resource and saves a lot of mon­ey for elec­trolyz­er manufacturers.

What prevents competitors?

What pre­vents com­peti­tors from mak­ing the same savings?

The stan­dard tech­nol­o­gy uses 2 mil­ligrams of irid­i­um per square cen­time­ter. Exter­nal research insti­tutes expect this lev­el to be reduced to 0.8 mil­ligrams per square cen­time­ter by 2030. 

Improv­ing the cur­rent tech­nol­o­gy beyond this will be dif­fi­cult, and the tech­nol­o­gy has a lim­it where irid­i­um can­not be fur­ther reduced with­out severe dete­ri­o­ra­tion of the lifetime.

Com­pare that to Smoltek’s cell mate­r­i­al, which uses only 0.5 mil­ligrams already, expect­ing to reach 0.2 mil­ligrams quite soon and even­tu­al­ly 0.1 milligrams.

Our tech­nol­o­gy is pro­tect­ed by patents and pend­ing patents. And entire­ly new solu­tions require years of research and devel­op­ment. Remem­ber, we have been work­ing on car­bon nanofibers for almost 20 years.

What’s the go-to-market strategy?

How will Smoltek bring the cell mate­r­i­al to market?

The approach is the same as we use for our capacitors.

We are work­ing in par­al­lel to fur­ther devel­op the cell mate­r­i­al from a lab pro­to­type to a ver­i­fied prod­uct and to devel­op an indus­tri­al process for mass pro­duc­tion. We expect to step out of the lab and take the first steps in the indus­tri­al are­na in 2024.

The goal is to be up and run­ning with mass pro­duc­tion in 2027. Before that, we will start small-scale pro­duc­tion of engi­neer­ing sam­ples and find the right part­ners to bring the cell mate­r­i­al to the world market.

Over and out

Sev­en ques­tions and sev­en thor­ough answers lat­er, I con­clude by remind­ing you to vis­it Smoltek’s investor rela­tions page on LinkedIn. Find the post about this Q&A and tell us what you want to know more about. I can’t promise you’ll get an answer right away or even at all. After all, Smoltek is a list­ed com­pa­ny and has many rules to con­sid­er. But we will do our best to answer every­thing we can in due course.