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.