T1 Energy Inc.: Form 10-Q for the period ended Sep 30, 2024

This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our condensed consolidated financial statements and the accompanying notes thereto contained in Part I, Item 1 “Financial Statements” and the other disclosures in this Quarterly Report on Form 10-Q and with the disclosures in our Annual Report on Form 10-K for the year ended December 31, 2023.

Overview

FREYR Battery, Inc. a Delaware Corporation (“FREYR,” the “Company”, “we”, or “us”) is a developer of sustainable clean energy capacity and solutions. We aim to accelerate the decarbonization of global energy systems by industrializing technologies across the battery and renewables value chains.

As of September 30, 2024, FREYR was evaluating several project opportunities in the U.S. and Europe to establish a profitable, commercial enterprise and to create shareholder value.

Transaction agreement with Trina Solar (Schweiz) AG

On November 6, 2024, FREYR announced that the Company had entered into an agreement (“Transaction Agreement”), to acquire all the shares of capital stock of Trina Solar US Holding Inc., a Delaware corporation (“Trina Solar US Holding”) and related subsidiaries. As part of the Transaction Agreement, FREYR will acquire Trina Solar US Holding’s five-gigawatt solar module facility in Wilmer, Texas.

Under the Transaction Agreement, FREYR will acquire Trina Solar US Holding for (i) $100 million cash consideration (subject to an adjustment for any leakage); (ii) 15.4 million shares of common stock; (iii) a $150 million one percent per annum senior unsecured note due in five years; and (iv) an $80 million seven percent unsecured convertible note due in five years, which, subject to approval by the Committee on Foreign Investment in the United States, is convertible in up to two conversions into 30.4 million shares of common stock, in aggregate, with the second conversion being subject to Company stockholder approval.

On the same date, FREYR entered into a preferred stock purchase agreement for the purchase of non-voting preferred stock of FREYR in exchange for $100 million, to be funded across two tranches of $50 million each, upon closing and thereafter upon FREYR’s sole discretion upon proceeding to a final investment decision with respect to a solar cell facility.

Further, on the same date, FREYR and a co-founder and significant shareholder of Trina Solar US Holding, entered into a securities purchase agreement for approximately $14.8 million of shares of FREYR’s common stock for $1.05 per share, representing an aggregate private placement of 10% of FREYR’s common stock outstanding.

The transaction is subject to certain customary conditions precedent, including, among other things, receipt by Trina Solar US Holding of certain third-party consents, completion of the first tranche of $50 million of preferred stock issuance and an internal reorganization to be completed by Trina Solar US Holding and it is expected to close around year-end 2024.

Under the terms of the Transaction Agreement, within 6 months of closing, FREYR will use its reasonable efforts to dispose, divest, transfer or otherwise sell the assets and operations that constitute its European business.

In connection with the transaction, the Company terminated its SemiSolidTM technology license with 24M Technologies (“24M”). Pursuant to the termination of the 24M license agreement, FREYR agreed to pay a service fee of $3 million and transfer all of its 24M preferred stock to 24M for $1.00. There are no further cash obligations.

Upon closing of the transaction, FREYR plans to execute a multi-phase strategic plan to establish a vertically integrated US solar manufacturing footprint. The next phase of the plan will be to construct a five gigawatt solar cell manufacturing facility in the US. Site selection is underway and FREYR is targeting a start of construction in Q2 2025 with anticipated first solar cell production in 2H 2026. The creation of a US owned and operated company that can provide a turnkey solar technology solution is expected to solve a bottleneck for developers, create up to 1,800 direct jobs, satisfy local content requirements for US solar projects, and competitively differentiate FREYR.

Other Recent Developments

• In September 2024, we implemented a restructuring plan to reduce overhead costs and better align the organization with current opportunities. The restructuring plan includes a reduction in force (“RIF”) of 91 employees.
• On November 6, 2024, Daniel Barcelo, FREYR’s current Chairman of the Board, was appointed Chief Executive Officer. In addition, Tom Einar Jensen, FREYR’s co-founder, assumed the role of CEO of FREYR Europe and will

oversee the optimization and monetization of FREYR’s European portfolio. Mr. Jensen is stepping down from FREYR’s Board of Directors to focus on FREYR’s European portfolio.

• Mingxing Lin, has been appointed the Company’s Chief Strategy Officer, and David Gustafson has been appointed Chief Operating Officer, both effective after the closing of the Transaction. Mr. Lin and Mr. Gustafson bring decades of collective experience in multinational company management and the solar industry to FREYR.
• On November 4, 2024, W. Richard Anderson was appointed to FREYR’s Board, effective immediately. Mr. Anderson has been the Chief Executive Officer of Coastline Exploration Limited, and he brings more than 25 years of leadership experience in the global energy industry and more than 15 years as a board member of public and private energy companies to FREYR.
• On November 4, 2024, Peter del Vecchio was appointed as the Company’s Interim Chief Legal Officer effective immediately.

Results of Operations

The following table sets forth information on FREYR’s condensed consolidated results of operations (in thousands except percentages):

NM - Not meaningful

Operating expenses

General and administrative

General and administrative expenses primarily consist of personnel and personnel-related expenses for our marketing and administrative personnel, costs for administrative offices, insurance, and outside professional services including legal, accounting, and other advisory services.

General and administrative expenses decreased by $9.3 million or 33%, to $18.5 million for the three months ended September 30, 2024, from $27.8 million for the three months ended September 30, 2023. General and administrative expenses decreased by $24.0 million or 28%, to $61.4 million for the nine months ended September 30, 2024, from $85.4 million for the nine months ended September 30, 2023. These decreases are primarily due to decreases in personnel costs and professional fees.

Research and development (“R&D”)

R&D expenses consist primarily of personnel and personnel-related expenses for employees engaged in research and development activities, internal and external engineering, depreciation for R&D equipment and facilities, supplies and services, and contributions to research institutions. R&D expenses also include development costs related to our technology license with 24M.

R&D expenses increased by $1.5 million or 22%, to $8.6 million for the three months ended September 30, 2024, from $7.1 million for the three months ended September 30, 2023. R&D expenses increased by $12.6 million or 69%, to $30.9 million for the nine months ended September 30, 2024, from $18.3 million for the nine months ended September 30, 2023. This is primarily due to an increase in personnel costs, depreciation and spending on R&D operations at the CQP, which started operations late in the second quarter of 2023.

Restructuring charge

Restructuring charge consists primarily of accrued severance and other termination benefits related to the reduction in force programs that began in September 2024 and November 2023. Restructuring costs were $4.5 million for the three months ended September 30, 2024 and $4.6 million for the nine months ended September 30, 2024, with no corresponding charges incurred in the comparable periods in 2023. See further discussion in Note 2 – Restructuring to our condensed consolidated financial statements.

Share of net loss of equity method investee

Share of net loss of equity method investee consists of our proportionate share of the net earnings (losses) and other comprehensive income (loss) from Nidec Energy AS. See further discussion in Note 5 - Long-Term Investments to our condensed consolidated financial statements.

Other income (expense)

Other income (expense) primarily consists of the fair value adjustments on our warrant liability, convertible note, interest income and expense, net foreign currency transaction gains and losses, and grant income.

Other income decreased by $20.8 million or 83%, to $4.2 million for the three months ended September 30, 2024, from $25.0 million for the three months ended September 30, 2023. Other income decreased by $42.0 million or 75%, to $14.0 million for the nine months ended September 30, 2024, from $55.9 million for the nine months ended September 30, 2023. These decreases are primarily due to a $(0.1) million and $1.2 million net foreign currency transaction (loss) gain for the three and nine months ended September 30, 2024, respectively, compared to a $3.2 million and $20.5 million gain for the three and nine months ended September 30, 2023, respectively as well as a $1.1 million and $1.3 million Warrant liability fair value adjustment for the three and nine months ended September 30, 2024, respectively compared to a $24.4 million and $23.2 million for the three and nine months ended September 30, 2023.

Financial Condition, Liquidity and Capital Resources

Liquidity and Capital Resources

As of September 30, 2024, we had approximately $184.1 million of cash, cash equivalents, and restricted cash and current liabilities of approximately $31.4 million. To date, our principal sources of liquidity have been proceeds received from our Business Combination, issuance of equity securities, and amounts received from government grants. Historically, these funds have been used for constructing and equipping our battery manufacturing facilities, including the CQP and Giga Arctic, the purchase of land for Giga America, technology licensing, R&D activities, and general corporate purposes.

Our future liquidity requirements depend on many factors, including the timing and extent of the following: capital expenditures for construction of future facilities and purchase of related equipment; spending to support licensing and R&D efforts; spending on other growth initiatives or expansion into new geographies, including through joint ventures; spending to support our future revenue generating activities; and general economic conditions.

Until we can generate sufficient revenue to adequately support our liquidity requirements, we expect to fund short-term cash needs through our existing cash balances. We believe that we have sufficient liquidity to meet our contractual obligations and commitments for at least the 12 months following September 30, 2024.

Our long-term operating needs and planned investments in our business and manufacturing footprint, as currently devised, will require significant financing to complete. Such financing may not be available at terms acceptable to us, or at all. The credit market and financial services industry have in the past, and may in the future, experience periods of uncertainty that could impact the availability and cost of equity and debt financing. If we are unable to raise substantial additional capital, our ability to invest in further facilities or other development projects will be significantly delayed or curtailed which would have a material adverse impact on our business prospects and results of operations. If we raise funds by issuing debt securities, these debt securities would have rights, preferences, and privileges senior to those of holders of our common stock. The terms of debt securities or other borrowings could impose significant restrictions on our operations. If we raise funds by issuing equity securities, dilution to stockholders may result. Any equity securities issued may also provide for rights, preferences, or privileges senior to those of holders of our common stock.

In November 2024, the Company estimated that a five gigawatt solar cell manufacturing facility in the U.S. would have a total cost of approximately $850 million. The estimated costs of construction remain subject to site selection, technology and product specification decisions, ongoing business, financing, and operational changes, and changes to the overall macroeconomic environment. We will continue to provide updates to reflect material developments, including approvals or commitments for spending that differ materially from our previous estimates.

Our planned capital expenditures are based on management’s current estimates and may be subject to change. There can be no assurance that we will execute our capital expenditure plans as currently estimated, without addition, reduction, or modification. We may also from time to time reduce or increase planned spending on specific capital projects and/or adjust the timing of planned capital expenditures due to factors both within and outside of our control, including the availability of financing. As a result, actual capital expenditures in future years may differ materially from the amounts discussed above.

Cash Flow Summary

The following table summarizes our cash flows (in thousands):

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Operating Activities

Net cash used in operating activities was $72.6 million for the nine months ended September 30, 2024, compared to $54.0 million for the nine months ended September 30, 2023. The increase in cash used in operating activities was primarily driven by an increase in cash used for working capital, largely due to the receipt in 2023 of $23.5 million in government grants with no corresponding amount in 2024, partially offset by a decrease in net loss, adjusted for non-cash items.

Investing Activities

Net cash used in investing activities was $11.9 million for the nine months ended September 30, 2024, compared to $168.0 million for the nine months ended September 30, 2023. The decrease in cash used in investing activities was primarily driven by a decrease in purchases of property and equipment due to lower construction activity in the current year period, and proceeds from the return of property and equipment deposits of $22.7 million for the nine months ended September 30, 2024 with no corresponding amount for the nine months ended September 30, 2023.

Financing Activities

Net cash used in financing activities was $4.1 million for the nine months ended September 30, 2024 relating to the purchase of the Company’s non-controlling interest in its U.S. joint venture and zero for the nine months ended September 30, 2023.

Critical Accounting Policies and Estimates

Our critical accounting policies and estimates are consistent with those described in the Management’s Discussion and Analysis section of our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on February 29, 2024. There have been no material changes to our critical accounting policies during the nine months ended September 30, 2024.

Other Company Information

On June 28, 2024, the market value of our stock held by non-affiliates was less than $560 million, and thus we gained qualification as a “smaller reporting company” under Rule 12b-2 of the Exchange Act. We are electing to comply with the scaled disclosure relief thereby available to smaller reporting companies.

Limitations on Effectiveness of Controls and Procedures

We maintain disclosure controls and procedures (“Disclosure Controls”) within the meaning of Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Our Disclosure Controls are designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act, such as this Quarterly Report on Form 10-Q, is recorded, processed, summarized, and reported within the time periods specified in the U.S. Securities and Exchange Commission’s rules and forms.

Our Disclosure Controls are also designed to ensure that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

Evaluation of Disclosure Controls and Procedures

As required by Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2024. Based upon their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act, were effective.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act, that occurred during the three months ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.