SES AI Corporation — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. Filed February 27, 2024. This is an annual report, not a stand-alone fourth-quarter report.
Business context
SES AI is a pre-commercialization company developing lithium-metal rechargeable batteries for electric vehicles, urban air mobility and other applications. It reported no revenue from its principal business and had not begun principal operations by year-end. Its development partners include GM, Hyundai and Honda; joint development agreements do not commit those OEMs to purchase batteries.
Financial results and liquidity
| Metric | FY2023 | FY2022 |
|---|---|---|
| Revenue from principal business | None | None |
| Research and development expense | $30.7 million | $28.0 million |
| General and administrative expense | $47.5 million | $51.6 million |
| Total operating expenses / operating loss | $78.2 million | $79.6 million |
| Interest income | $16.7 million | $6.2 million |
| Gain on fair value change in Sponsor Earn-Out liabilities | $6.8 million | $25.4 million |
| Net loss | $53.4 million | $51.0 million |
| Net loss per share, basic and diluted | $0.17 | $0.18 |
| Cash used in operating activities | $56.4 million | $46.5 million |
| Capital expenditures | $15.8 million | $14.7 million |
Gross margin and operating margin are not meaningful because the company had no principal-business revenue. R&D spending before credits received under partner agreements was $53.9 million in 2023, versus $42.2 million in 2022. Partner credits reduced reported R&D expense.
At December 31, 2023, cash and cash equivalents were $85.7 million and short-term investments were $246.8 million, totaling $332.4 million. Current assets were $348.6 million; current liabilities were $20.4 million. Total liabilities were $47.9 million, including operating lease liabilities; the filing does not report conventional borrowings outstanding. Accumulated deficit was $198.7 million. Management said available cash and marketable securities should fund working capital and capital expenditures for at least 12 months from the report date and, in its view, through commercialization; additional funding could still be needed.
FY2023 operating cash use increased by $9.9 million from FY2022. Investing activities provided $32.7 million, largely reflecting investment maturities relative to purchases; financing activities provided $3.3 million, mainly government-grant proceeds and option exercises. The company had $74.3 million of purchase and lease obligations, including $55.3 million of short-term purchase obligations and $17.1 million of total operating lease obligations. A $0.6 million letter of credit was outstanding, with no amount drawn.
Changes and notable items
- Net loss increased $2.4 million even as operating expenses fell $1.4 million. Higher interest income and a $6.8 million earn-out fair-value gain were more than offset by the sharply smaller earn-out gain compared with 2022.
- R&D expense rose 9.7%, driven principally by employee, facility and laboratory costs; reported G&A fell 8.0%, partly because 2022 included business-combination costs and higher insurance expense.
- Cash and cash equivalents declined from $106.6 million to $85.7 million, while short-term investments declined from $283.5 million to $246.8 million. The company reported a $21.0 million net decrease in cash, cash equivalents and restricted cash.
- Headcount reached approximately 300, about 50% above the prior year; roughly 80% of employees worked in R&D and related functions.
- The reported earn-out gain is a non-cash fair-value item, not operating revenue. The earn-out liability was $4.2 million at year-end and its valuation was identified as a critical audit matter.
Outlook, risks and contingencies
Management’s development targets are B-sample batteries in 2024, C-samples in 2026 and planned commercial production in 2027. It expects R&D expense and capital expenditures to increase significantly in 2024; it expects operating and net losses to continue at least through 2028. These are plans and estimates, not guaranteed outcomes. The filing provides no revenue or earnings guidance.
The company reported third-party testing of a 100 Ah cell at 380 Wh/kg and 850 Wh/L, with charging to 80% in under 15 minutes; higher performance targets are projections, not established commercial results. SES said its Li-metal batteries have not been used in an actual EV and it has no arrangements to manufacture consumer-ready batteries for OEMs.
- Financial reporting controls: Management and the auditor concluded internal control over financial reporting was ineffective at December 31, 2023. Material weaknesses involved financial-application access and segregation of duties, and a review control over the sponsor earn-out valuation. The auditor issued an adverse opinion on internal controls but an unqualified opinion on the financial statements. Management said the weaknesses did not cause material misstatements in the periods presented and described remediation work in progress.
- Technology and commercialization: Battery performance, safety, durability, yield, scale-up, OEM integration and regulatory approval remain unproven for commercial EV use. Development delays or failed testing could defer or prevent commercialization.
- Funding and spending: SES expects years of losses and cash use, with higher planned R&D and facility investment. Funding beyond available liquidity may be needed and could dilute stockholders.
- Partnerships and supply: JDAs are development agreements, not purchase orders. The company lacks long-term supply arrangements and depends on third parties for materials, equipment and manufacturing inputs.
- International, regulatory and safety exposure: Operations in China and South Korea face geopolitical, export-control, currency, environmental, labor and government-incentive risks. Lithium-based batteries also carry fire, product-liability and recall risks.
- Governance and dilution: The founder group held approximately 58.6% of voting power as of February 21, 2024. Warrants have an $11.50 exercise price; outstanding warrants, equity awards and other reserved shares may dilute holders if issued.
Management reported no material cybersecurity incident known to it during 2023. Government grants are conditional and potentially subject to reduction or repayment; $9.3 million of received South Korean grant funds remained unearned and recorded as a liability at year-end. Management said ordinary-course legal claims were not expected to have a material effect; the maximum potential indemnification payments were not determinable.
Most important facts for investors to verify
- Whether B-sample milestones, OEM testing and agreements progress on the stated schedule—and whether partners commit to commercial purchases.
- Whether independent testing and eventual vehicle integration substantiate performance, safety, cycle-life, yield and cost claims at production scale.
- How quickly cash and investments are consumed as R&D, facilities and capital expenditures increase, and whether additional financing will be required.
- Whether SES remediates the material weaknesses in financial controls and sustains effective controls, particularly for system access and earn-out valuation.
- Whether grant conditions, purchase commitments, supply availability, export licenses and international operating risks change the cost or timing of commercialization.
- The effect of equity awards, warrants, earn-out shares and founder voting control on dilution and stockholder influence.