Novonix announced today that it has finalised it's US$100M grant award from the US Department of Energy to expand domestic production of their synthetic graphite anode materials at their facility in Chattanooga, Tennessee. The funding will allow the doubling of production capacity to 20,000 tonnes per annum.

The initial application October last year was to fund the construction of a new facility; however, the company negotiated to have this funding applied to it's existing Riverside facility with the $150M award being resized to $100M.

Novonix's Riverside facility will begin production in late 2024 to supply KORE Power as per their supply agreement and continue to engage with other prospective customers.

The company is also planning on opening a new production facility with an initial production target of at least 30,000 tpa. Their application for funding support under the DOE Loan Programs Office's Advanced Technology Vehicles Manufacturing (ATVM) Program has progressed to phase 3 - due diligence. If awarded, a loan through the ATVM program may provide leverage up to 80% of eligible project costs of the company's next facility.

The company highlighted recent Chinese exports controls on graphite as placing additional importance on having a domestic supply in the US. Considering the $100M received and the progression of their DOE loan application for a second facility, I'd say the US government agrees. Synthetic graphite is currently imported almost exclusively from China.

https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02734362-2A1484735?access_token=83ff96335c2d45a094df02a206a39ff4

The US Department of Energy (DOE) has selected NVX to receive US$103M in tax credits under the 48C program - Qualifying Advanced Energy Project Allocation Program.

The 48C program incentivizes "clean energy property manufacturing and recycling, industrial decarbonisation, and critical materials processing, refining, and recycling, and aims to foster the creation of high-quality jobs, curb industrial emissions, and bolster US domestic production of vital clean-energy products and critical materials."

Many applications were submitted under high competition and NVX was selected as one of the first beneficiaries.

NVX was previously awarded a US$100M grant for it's riverside facility by the DOE highlighting the continued support by the US government.

NVX has a period of 2 years in which to use the tax credit and importantly, these credits can be sold for cash.

The US government has now provided over US$200M in support for a company sub $10M in revenue. I think this highlights not only American governments objective to compete with/not be reliant with China for the battery revolution but also their belief in NVX.

https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02790590-2A1514781

Novonix announced a binding off-take agreement with Panasonic Energy for at least 10,000 tonnes of anode material for use in their U.S. plants over the term of 2025-2028. With Novonix using it's best efforts to deliver extra at Panasonic's request.

Novonix expect production at their Riverside facility to begin late 2024 with plans to grow output to 20,000 tonnes.

Key Terms

Off-take volume commitment is subject to Novonix achieving agreed upon milestones regarding final mass production qualification timelines prior to Q4 2025

Panosonic has the right to reduce the 10,000 tonnes (up to 20%) or terminate if these milestones are not achieved on time or if there is a substantial delay respectively.

The pricing structure incorporates adjustments in response to significant changes in the cost of Novonix's raw materials.

Interview

Founder and CEO of Novonix, Dr Chris Burns was on the Odd Lots podcast recently. He gave a great interview talking graphite, government incentives, localising supply chains, challenges facing the industry and answered some company specific questions. Not only was I impressed with his knowledge but also how unpromotional he was regarding the company. If you’re interested in batteries, this is a must listen. Below are my notes as well as a few italicised thoughts.

Graphite

Graphite has tended to be the forgotten critical mineral because graphite is what “prevents” the battery from being more energy dense, from holding more energy and lasting longer on a single charge. However, graphite is also the only material that can hold lithium ions and give them back thousands of times to allow for long life battery applications required for vehicles and energy storage.

People are always hoping to have a new material or technology (e.g. solid state batteries) to displace our reliance on graphite and allow higher energy dense batteries. Solid state batteries have been hyped for a long time with nothing to show but more importantly, energy density isn’t really the problem to solve for vehicles; range and cost are. Which is why many are going with lower energy dense batteries and also why graphite is going to be so important. It’s also why graphite got overlooked for many years.

The graphite materials they make are not commodities. Natural graphite is dug out of the ground as a commodity but then it’s shape and size are changed. Then it’s purified with heavy acids and a surface coating is put on and finally it’s ready to go into a battery. With synthetic graphite (what NVX uses) it’s a similar process but instead of starting with graphite they start with other carbon rich precursors, such as petroleum coke (which NVX use) or coal coke (which China use). But instead of purifying them, they heat them to really high temperatures, about 3,000 degrees Celsius, changing the atomic structure into graphite so it’s ready to be used in a battery. NVX develops technology focused on this high temperature process.

NVX owns the IP for this process further strengthening their competitive advantage.

The graphite materials they make for Panasonic, for example, will look different to the material they make for LG or Samsung or Core Power. This makes it really hard for the government to come in and buy graphite to help support the industry.

Unlike lithium or nickel, graphite is not a traded metal. Spot prices coming down for these two traded metals can have some impact on the long-term agreements in place but it’s limited because many have caps and collars that control adjustments. But unlike graphite they can be influenced by speculation in the market and not just basic supply demand dynamics.

Currently, battery graphite is contracted in China on a quarterly or annual basis. So they are having to rethink how they do commercial contracts so they’re financeable. As an example, LG invested in them last year and signed a joint development agreement that stipulates the qualification schedule for their product and it’s intended to trigger an off-take with a 10 year term. Because LG need to know they’ll have these materials for the long haul. Without these firm agreements or off-takes for NVX, financing is hard. This is why the government can’t just throw money at the building production capacity issue, it’s only one small part of the problem. The technology and products need to be developed and these take a long time to develop and qualify.

These are not simple customer transactions (ie the selling of their graphite materials to LG or Panasonic), they’re long-term partnerships. If these companies goal is to have localized supply, they need to look at NVX as a partner, not like an auto supply company where there’s 10 companies and you can drive 8 of them bankrupt as long as you keep 2 alive.

These points highlight the difficulty for other players to enter the market, the competitive advantage Novonix has or should develop and that the pricing power the company’s customers have over them is limited.

We will always need graphite as it’s the only anode chemistry that can last thousands of cycles. And while it may not be as energy dense, it lasts longer – “why would I pay 10% less for a battery that only lasts half as long…”

Government Incentives

NVX/the US are trying to balance financing/costs with developing materials independence and process technology independence.

The US has a challenge competing with China dollar for dollar on localizing their supply chain with regards to graphite. The American government has stepped in with the inflation reduction act where NVX can qualify for 45 acts, Advanced Manufacturing Production tax credits where 10% of their costs of goods can go back to them in tax credits on an ongoing basis or they can apply for 48C where 30% of their capital investment on a clean energy project you get back in tax credits (see my straw - https://strawman.com/reports/NVX/CanadianAussie?view-straw=25705). The government has already awarded NVX a US$100M grant under the Infrastructure Law Package and graphite has been identified as a critical mineral in all of the US policies including section 3 on tariffs – the 25% tariff from China (there is currently an exemption on this tariff).

The US government has made the battery revolution and a localised supply chain, one not dependent on China, a priority. And based on the grants/awards/credits NVX has received they see them as an important player in this transition.

Localising Supply Chains

The world is realizing they need to shift cell manufacturing globally and outside of China. However, it’s incredibly capital heavy. This causes people to go where the incentives are strong, and for cell manufacturing specifically, the US is appealing due to all the incentives mentioned previously. As a result a lot of investment is being pulled into the US. Dr Burns believes we need to see this trend continue in other jurisdictions as people are more sensitive to being reliant on China after what happened with semiconductors.

The industry and NVX face a scale challenge; there won’t be enough supply for the demand. Even with their plant complete producing 20,000 tons, 1,000 tons of graphite only produces about a gigawatt hour of batteries.

The technology has been/is offshored to China with regards to graphite despite much of the technology being invented and patented “here” (as in at Dalhousie University where Dr Chris Burns did his PhD). But when it came to commercializing and scaling batteries we said “it’s too expensive to make them here, let’s make them in China”. As a result, China became proficient in processing and developing new technologies.

China can take environmental “short-cuts” to drive costs down as their environmental controls are not as rigorous. How they handle their acid waste streams, or emissions from their high temperature processing, the power intensity required etc.

Although not mentioned in the interview, Novonix’s patented DPMG process gives them big ESG tailwinds with regards to manufacturing their graphite. DPMG produces no wastewater, compared with 99,000L/day of wastewater and fine particle waste produced by traditional methods, the traditional process (CSTR) is as expensive as the raw materials and DPMG allows for a lower cost, higher yield with reduced environmental impact and improved materials performance. (See my straw “Strawman Presentation” for more info https://strawman.com/reports/NVX/CanadianAussie?view-straw=25705)

Labour

No one in the country has run battery graphite plants. They only exist in China. So you can’t go out and hire people who have done this before. Much of that IP and knowledge has to be home grown and takes time. Dr Burns believes they can rescale labour from other industries, for example speciality chemicals.

This could also provide Novonix with a competitive advantage as they grow, similar to those seen by semiconductor plants but likely to a smaller degree.

This is What’s Hard About Building a US Domestic Battery Industry – Odd Lots

https://omny.fm/shows/odd-lots/this-is-whats-hard-about-building-a-us-domestic-ba

It has been an eventful few weeks for Novonix. To recap:

• VP Emerging Energy from Phillips 66 was appointed to the BOD, replacing outgoing board member. Phillips maintains the right to nominate a member to the board as a result of their investment in NVX in 2021. Any commentary around this would be speculation, so it is difficult to add too much, other than to say this relationship is absolutely critical for Novonix due to synthetic graphite (SG) requiring feedstock.  
• An engineering report conducted on Novonix’s cathode synthesis process highlighted potential improvements over conventional cathode synthesis. In summary, capital expense intensity was nearly 30% lower, processing cost reductions was nearly 50% lower, estimated power consumption improvements of around 25% while removing the need for water and other key waste byproducts in the material processing steps. This is a big deal for Novonix and will sit entirely separate from their work in the anode space. For the purpose of being conservative, I have actually excluded their cathode division entirely in my valuation, but this division could exceed the value of their anode division so it is one to watch.
• We got some much-needed insight into their anode division's progress. Things are tracking along nicely re: specifications and design throughput targets. The company also indicated they were updating engineering for their Riverside facility with an increased production target of up to 20,000 tpa, compared with the initial 10,000 tpa target. Lastly, we also got some insight into their economics, with the company expecting capital and operating costs for future facilities projected to be lower than the company’s initial estimates. The company is targeting operating margins ranging from 23-28% based on estimated sales prices ranging from $7/kg to $10/kg, depending on customer product specs.
• Process economics for SG relate to three drivers – raw input costs (needle coke); energy costs; and operating costs (labour and depreciation, among other items).
• 3 x BOD staff bought shares on market in September – 380k shares, 360k shares and 117k shares respectively – so not church change by any means.

Novonix continues to track along nicely, but there are some clear risks here, namely cheap and dirty production of battery-grade anode in China, who dominates this space. This industry isn’t dissimilar to the solar industry in that, it isn’t sustainable for the west to fish in these waters without significant support from government. This remains key to the investment thesis. If there is any wavering of support from the gov (re: both funds and legislation) the investment thesis is broken. But as most who follow this space know, this has been declared a national security issue and rightly so – the west needs to be able to produce key battery materials themselves, hence govt support. Luckily for Novonix, this continues to be well supported by the gov – legislation will support businesses like Novonix developing critical materials onshore and elsewhere, and much more sustainably/environmentally friendly than the Chinese, and US tariffs should be in place within six months to incentivise/support local onshore producers. The US DOE loan application also appears to be tracking along nicely; this is expected to cover the overwhelming majority of Novonix’s next facility which will expand anode production, in addition to a $U150m grant provided by DOE.

As I mentioned a few months ago, this investment isn’t for the faint hearted. The balance sheet will appear terrifying and investors without sufficient knowledge of this thematic might struggle to understand the investment thesis. But this is a business investing in its future, and their BOD and Chief Scientific Advisor are quite literally world leading. There is an economic/time moat developing here – if Novonix succeeds in establishing scalable supply of synthetic graphite onshore (something I think is highly likely), they will be one of a select few graphite/anode entities in the market. Battery-grade anode requires extensive testing by battery and OEM customers due to the importance of the product they are putting in their batteries (by weight, graphite is the largest component in lithium-ion batteries – containing 10-15 times more graphite than lithium).

In the next six months I am hoping for an update on 1) DOE loan finalisation b) key offtake agreements and c) site selection on their next facility in the US.

Novonix have announced an investment and Supply Agreement with KORE Power

KORE Power is a leading US based developer of battery cell technology for clean energy industries and has worked with NVXs BTS division since 2019 to improve and validate their battery technology. As a result, KORE Power’s cell performance is comparable to global Tier 1 cell providers.

In July of last year KORE announced their intention to build KOREplex, a one million sq foot manufacturing facility that will support up to 12 GWh of battery cell production to be located in Arizona. KOREplex will start production in early 2023.

Through the non-binding supply agreement, Novonix will be the exclusive supplier of graphite anode material to KOREplex which when in full production will be close to 12,000 tonnes per year of material. The five-year supply agreement is initially 3,000 tonnes per annum beginning 2024 but subject to customer requirements, supply can ramp to 12,000 tonnes per year.

NVX will invest $25M USD to acquire roughly 5% stake in KORE Power. This will be paid 50% by cash and 50% by NVX ordinary shares at a valuation equal to 95% of the 20-day VWA trading price. With 3,333,333 shares being purchased at $7.50 per share and making up 5% ownership in KORE Power, this gives KORE a market cap of approximately $500M.

Thoughts

By having a local American customer, NVX is less prone to supply chain disruptions.

They are reducing the reliance on foreign materials and further America’s position as a global energy leader.

This gives them a customer taking 30% of their supply (10,000 tonnes per year) when their Riverside facility is complete in 2023.

Another smart move by NVX that decreases their supply chain risk and dependence on Samsung and Sanyo.

Phillips 66 has announced it has acquired 77 962 578 shares at approx. $2.64 per in Novonix, which representsd a 16% stake in Novonix.  

Phillips 66 is a leading global manufacturer of specialty coke, a key precursor in the production of batteries that power electric vehicles. 

The investment by Phillips 66 will support a capacity expansion of an additional 30,000 mt/year, which is expected to be completed by 2025.

This investment addresses one key concern regarding Novonix, which is the reliability and capability of sourcing coke feedstock under its ambitious expansion plans.  With the largest coke feedstock supplier invested, and with a board member, long term supply look a lot more secure. 

DISC - I HOLD. 

Inner Mongolia is an important Chinese production hub for synthetic graphite due to its relatively low electricity unit price. Inner Mongolia hosts approximately 46% of China’s graphitization capacity.

Strict energy consumption control policy for high-energy consuming industries have been applied by Inner Mongolia in response to China’s 14th Five-Year Plan. The new controls have limited the production of synthetic graphite from existing producers in Inner Mongolia, as the supply of electricity to the region’s synthetic graphite graphitization plants decreased by 15-30% since April, according to Chinese industry research firm ICCSINO. The situation improved in May and June, but supply tightened again in July, with utilization rates falling by 10% in Ulanqab.

Besides potentially affecting the possibility of new projects getting government approval, Roskill says that this situation has led to a 70% increase in the price of active anode material (AAM) based on synthetic graphite.

Good news for NVX.

News article here

Fig 1. Shows the Novonix Business 1/ Battery Testing 2/ Anode Materials 3/ Cathode Materials

Fig 2. 30^th September 2021 Cash $290.9Million AUD

Fig 3. Quarterly Activities Report July – September 2021

On 28 July 2021, the Group purchased commercial land and buildings in Chattanooga for USD $42.6M to expand the NAM business. The Group entered into a loan facility with PNC Real Estate to purchase the land and buildings. The total available amount under the facility is USD$30,100,000 and it has been fully drawn down as at 30 September 2021. The facility is repayable in monthly instalments, commencing September 2021 and ending August 2031. The land and buildings have been pledged as security for the loan.

November 2021: Chattanooga Now open for Business.

We also have a significantly broader US shareholder base as a consequence of our OTC markets listing and this will be augmented soon by a potential listing on NASDAQ.

At Present:

Noted:  1/12/21 the share price has run up to circa $12per share

So the current $12 ps is ahead of our projections here. Thinking $6ps would be ok for my projections.

About NOVONIX NOVONIX:

 Limited is an integrated developer and supplier of high-performance materials, equipment and services for the global lithium-ion battery industry with operations in the U.S. and Canada and sales in more than 14 countries. NOVONIX's mission is to enable a clean energy future by producing longer-life and lower-cost battery materials and technologies. In August 2021, The Phillips 66 Company announced that it would acquire a 16% stake in NOVONIX, investing US$150 million to help scale-up operations to 40,000 tpa of anode material production for the lithium-ion battery market.

Novonix develops and supplies lithium-ion battery materials and testing equipment for the North American market. The company, founded in 2012, was previously called Graphitecorp Limited, and spent its early years in graphite mining and exploration. In 2017 it purchased Canadian-based Novonix Battery Technology Solutions (BTS) and adopted its name. The company shifted its focus to exploit the growing interest in the EV and battery space. Shortly after, it developed Dry Particle Micro Granulation (DPMG) and Single Crystal Cathode battery technologies through R&D. 

DPMG

DPMG is the company’s breakthrough method to produce higher quality, low-cost synthetic graphite anode and cathode materials. It is more efficient and sustainable than the traditional Continuous Stirred Tank Reactor (CSTR) process, which in comparison produces a lot of waste and is not environmentally friendly. This is the reason why CSTR is commonly referred to as an ‘environmental minefield’. For those looking to expand their knowledge on DPMG, I recommend watching this video. 

Novonix structure

Following the development of DPMG, the company established three main business segments it would focus its innovation on:

• Novonix battery technology solutions (BTS)
  • As the name suggests, BTS focuses on battery technology solutions. 
• Novonix PUREgraphite
  • Focused on developing anode materials 
  • Developed a new environmentally friendly process to produce lower cost graphite anode material for lithium-ion batteries in the US. (DPMG method)
  • Most progressed of the three segments relating to commercialisation of products. 
  • First contracted supplier of US-made high-capacity long-life synthetic anode. 
  • Agreements with Samsung SDI and Sanyo. 
• Novonix Cathode materials 
  • Leveraging DPMG technology
  • Ground floor patents in for new tech
  • Single crystal and Polycrystalline cathodes
  • Installing pilot scale processing

Key facts 

• The average production cost of synthetic anode using the CSTR method is around $8000/ton, while DPMG is estimated to produce these materials at a cost of only $5000/ton along with being environmentally friendly.
• The performance of Novonix’s PUREgraphite synthetic anodes is impressive. Research using fuel cell data shows that PureGraphite synthetic anodes produce higher quality batteries with longer life, compared to the industry’s best products.  

What I like

• Founder led, with around 20% insider ownership (will confirm this in the soon to be released annual report).  
• Demand for artificial (synthetic) graphite anode material continues to increase due to electrical vehicle and renewables growth. The anode and cathode markets are expected to reach $100 billion/year by the year 2030. Novonix is well positioned to be a major supplier of battery materials over the next decade. Current supply is mainly sourced from Asia – mostly China – due to it being the lowest-cost producer. But these methods aren’t environmentally friendly. This lies the opportunity for Novonix – battery manufacturers don’t want to be heavily reliant on Chinese graphite providers due to the political and environmental risks. 
• My investment thesis is focused on Novonix’s patented DPMG and the competitive advantage it provides the company. This is Novonix’s moat – it enables the company to produce higher quality synthetic graphite materials for lithium-ion batteries at a lower cost than traditional production methods. Further, the method allows them to do so in a more environmentally friendly way – another tailwind for the company with the increasing focus on ESG. DPMG has essentially enabled Novonix to achieve a level of production efficiency that allows battery manufacturers to diversify their materials supply chain out of Asia.
• In addition, BTS division are anticipated to support Novonix PUREgraphite, with their revenue expected to grow from 5 million (currently) to 10m in the next few years. 
• The company has agreements with Samsung and Sanyo – two of the biggest battery manufacturers in the world – to supply synthetic graphite anodes. This demonstrates demand and is endorsement for Novonix’s patented tech. Novonix is consequently ramping up production, with agreements to supply as much as 100,000 tons of synthetic graphite anodes a year by 2030. 

Monitor/risks

• The thesis is built around Novonix maintaining its competitive advantage in the space. Should another company find a more affordable or efficient way to produce graphite material the thesis is broken. 
• Production of 10,000 tonne/year estimated for 2022 once their Alstom plant is finished. This will be yet another significant milestone for the company. 
• P/S of x8 already priced in (thanks @CanadianAussie). There is a lot of expectation priced into their share price at the moment. For whatever reason, if Novonix aren’t able to commercialise their battery products sufficiently it will negatively impact the share price, and likely in a big way. 

Novonix has slowly grown to excite the market as it continues to achieve significant milestones. They are shaping up to be a serious contender in the battery manufacturing space. The company has an exciting future in store for it provided it can continue to tick the relevant boxes. I believe they can. They are well positioned to be an industry leader in a space that will continue to grow rapidly over the next decade. Consequently, this is a high conviction pick for me – but its not without its risks (as outlined above). 

DISC: Held in real life - personal and super portfolio. I didnt add Novonix to my Strawman portfolio, but will add a small position next week for transparency purposes. 

Ps - I am looking forward to hearing CanadianAussie's stock pitch on Novonix this Friday!

27th

Who is NVX? continues to benefit from bullish sentiment in the battery materials sector.

Fundamentals:

Market Cap: $2,695Mill large cap

Fully Paid Ord. Shares 404.65Million

Price $6.66 at close

 Operating cashflow /Total Tangible Assets: Under zero & trending up though.

Total Liabilities / Total Tangible Assets: 0.1 ok below bench mark though.

Net Debt / Equity: minus 34.23%

EPS : minus 4.18 cents at June 2021

Total available funding: cash at end $136,663.98Mill at June 2021

Note no Dividend paid,

1yr Share price growth Return:  455%

Sept 2021 Latest PE : -159% = 666 / - 4.18

2022 if Forecast is PE: 222% = 666 / 3 ( over priced at 666 cents! )

Realist Forecast PE: 100% = 300 / 3 ( share price falls to 300 cents )

So speculation here. NVX will need to produce good EPS at circa 6.0 cents in 2022 for sustainable share price of 666cents.

Revenue from Battery materials and Battery Technology Development.

URL: https://www.novonixgroup.com

Who is in charge?

Dr Christopher John Burns

Chief Executive Officer

Bio

Mr Burns is the co-founder and CEO of NOVONIX Battery Testing Services Inc based in Canada and co-developed the breakthrough Ultra-High-Precision-Coulometry (UHPC) technology with Professor Jeff Dahn. He has also been the COO of the NOVONIX group responsible for the PUREgraphite business in the USA and the Battery Technology Solutions (BTS) business in Canada, for the last three years.

Mr Anthony (Tony) George Bellas

Non-Executive Chairman,Non-Executive Director (Since 2015)

Bio

Mr Bellas brings over 30 years of experience in the public and private sectors. Tony was previously CEO of the Seymour Group, one of Queensland's largest private investment and development companies. Prior to joining the Seymour Group, Tony held the position of CEO of Ergon Energy, a Queensland Government-owned corporation involved in electricity distribution and retailing. Before that, he was CEO of CS Energy, also a Queensland Government-owned corporation and the State's largest electricity generation company, operating over 3,500 MW of gas-fired and coal-fired plant at four locations. Tony had a career with Queensland Treasury, achieving the position of Deputy Under Treasurer. Tony is a director of the listed companies shown below and is also a director of Loch Exploration Pty Ltd, Colonial Goldfields Pty Ltd and West Bengal Resources (Australia) Pty Ltd. Other current directorships includes: Chairman of intelliHR Limited and Deputy Chairman of State Gas Limited and Director of the Endeavour Foundation. Former listed directorships in last 3 years includes: Chairman of Corporate Travel Management Ltd (ceased 2019), Chairman of ERM Power Ltd (ceased 2019) and Chairman of Shine Justice Limited (ceased 2020).

Other current directorships

Non-Executive Director GAS State Gas Limited

Non-Executive Chairman,Non-Executive Director IHR intelliHR Limited

Idea WhyThis?

NOVONIX Battery Technology Solutions Inc. is a subsidiary of NOVONIX Limited (ASX:NVX, FRA:GC3, OTCMKTS:NVNXF), an integrated developer and supplier of high-performance materials, equipment and services for the global lithium-ion battery industry with operations in the USA and Canada and sales in more than 14 countries.  For more information about the group’s capabilities and focus visit www.novonixgroup.com

Cell design and prototyping,

Outlook at 26the August 2021

The company outlined its “growth strategies” for FY22 in the report. It hopes to “execute on development of synthetic graphite production”, with a plan to expand to 150,000 tonnes per annum.

In fact, the company is targeting a capacity of 10,000 tonnes per annum in “early 2023”. It then intends to expand capacity to 40,000 tonnes in 2025 and 150,000 tonnes in 2030.

In addition, Novonix is also aiming to commercialise its “proprietary pipeline” of advanced battery materials. Here it is seeking to “meet key testing milestones” over the coming year and a half.

The Novonix share price has posted a year to date return of 238%. This far outpaces the S&P/ASX 200 index (ASX: XJO)’s return of about 14% over the same time.

Why Now?

However, anticipated demand in lithium-ion batteries seems to be the catalyst. Furthermore, the spot price for lithium carbonate has roared to 153,000 Chinese yuan per metric tonne (roughly A$32,700).

S&P 300 rebalance: Novonix was also added to the ASX 300 Index on Monday 20th Sept. This means that fund managers are able to invest in the company.

Some Peers:

Australia:

Strategic Elements Ltd (ASX: SOR).

*New IPO – LIS, Li Sulphur battery development lists 28/9/21.

MNS - The company has completed initial works including the internal building clear-out. Now, facility customisation work has commenced with machinery roll-out to start next month. Furthermore, construction material for the facility has continued to arrive at the factory.

QPM - Townsville Energy Chemicals Hub project (TECH Project). TECH Project will produce nickel sulfate, cobalt sulfate, high purity alumina and other by-product. During the year Product marketing of the key battery chemicals to be produced by the TECH Project, nickel sulfate and cobalt sulfate, was a key focus for QPM

USA:

Rechargeable batteries are already being used for new applications. Most famously perhaps is by Tesla Inc (NASDAQ: TSLA). If Strategic Elements is really onto a winner here, it would have virtually limitless applications – including in electric vehicles. Further, companies working in this area, like Tesla and Nio Inc (NYSE: NIO), have recently seen significant investor interest and share price appreciation. I’m sure some of this goodwill and sentiment is flowing into Strategic Elements today.

Why Invest?

EVs  Technology. 

Enter, Invest share price is steep. I would look for some price support in the up or down direction before trading.

NVX has stepped up production encouraged by USA via Biden Policy.

Second Factory in the USA.

Declare: in the Portfolios RL & SM.

Novonix has appointed Minviro Ltd, a globally recognised sustainability and life cycle assessment consultancy, to assess it's synthetic graphite used in electric vehicles (EV) and energy storage systems (ESS).

Life cycle assessment (LCA) considers environmental impacts associated with a particular product or process and incorporates all material and energy inputs, direct emissions and waste products. LCAs provide a detailed account of the environmental footprint of a project.

In this study, Novonix's anode materials have been benchmarked against other natural and synthetic anode graphite projects. It will also consider the products environmental performance relative to kWh of the final battery and kms travelled. This point should not be overlooked; a competitor may get a "cleaner" anode to market but how long the battery lasts plays a large role in the environmental impact and needs to be considered.

Preliminary results are not final and have not been peer reviewed; however, they show Novonix's synthetic graphite anode product offers approximately a 60% decrease in CO2 emissions.

If these results are confirmed upon peer review, that would make Novonix's anode product 2.5x better for the environment than Chinese product.

• NVX commences process for Nasdaq listing
• The US listing is expected to take place after the SEC and Nasdaq have completed their review process and upon effectiveness of the registration statement.
• The establishment of the program by NOVONIX is not a public offering or issuance of new NOVONIX ordinary shares. Under the Level II program, the ADRs will be based on ordinary shares currently on issue.
• NOVONIX expects to begin trading on Nasdaq under the ticker symbol “NVX”.

This has been in the works for some time, so shouldn't surprise the market too much. That said, NVX volatility is commonplace these days - so the share price will probably be all over the place today.

On a personal note, I will be looking to trim this one soon. I am a huge fan of the company - I have owned since April/May 2021 for an average entry price of $2.00. There are obvious tax implications as I haven't owned for 12 months but I don't see the current price as sustainable. I won't sell my entire holding, NVX is one of my higher conviction stock picks so I couldn't bring myself to sell the lot. I also think the Nasdaq listing will only benefit the company, particularly pertaining to positive political implications - so I remain incredibly bullish for the future. In saying that, my plan is to DCA slowly into NVX in my super portfolio. I don't want to be too fussy so if I can get entry around $5-6 that would be ideal.

DISC: Held

NVX App 4C

Novonix released their quarterly activities report for the Oct – Dec 2021 quarter.

Anode Materials

•Well-funded with a cash balance of $259.9M

•Directors fees of $286,000 for the quarter

•Filed for NASDAQ listing on Jan 9^th, 2022

•Gen 2 furnace systems in continuous operation with second system to be commissioned Q3

•First 2 gen 3 systems to be commissioned Q3

•Deliveries to Sanyo & Samsung SDI deferred with plans to provide materials using gen 3 furnace technology

•400,000+ sq foot Riverside facility to provide 10,000 tonnes per year anode material by 2023

Regarding their partnership with KORE (see previous announcement) – KORE will be building KOREplex, a 1M sq foot manufacturing facility that will support 12 GWh of battery cell production in Arizona and beginning production in early 2023. This aligns with NVXs Riverside facility projected to be fully operational in 2023. NVX will be the exclusive supplier of graphite anode material to KOREplex which when in full production will be close to 12,000 tonnes per year of material.

This provides NVX with additional customer options beyond Samsung and Sanyo.

BTS

•Continued strong revenue growth

•Team increased from 27 to 56 during CY2021

•Renovations expected to finish with move in Q3

Cathode Synthesis Technology

•Received $1.675CAD from Ngen Canada to support their expanded cathode demonstration line

•Expanding cathode development team & capabilities

•Equipment for 10 tonne per year demo line to be installed & commissioned this financial year

Cash Flow Statement

•R&D, staff costs & admin & corporate costs are all significantly up resulting in $7.6M operating cash outflow for the quarter

•Receipts from customers $2.2M

•$25.8M spent on PP&E

•Well-funded with 34 quarters of funding available and $259.9M cash

PP&E spend was up nearly double on the previous quarter as expected with the company building out their production facilities. The company is still early stages with their Riverside facility not operational until 2023. Of interest was the comment that they’ll be the exclusive supplier to KORE with KOREplex eventually requiring 12,000 tonnes of materials (NVX capacity will be 10,000 tonnes in 2023). My interpretation of this is that if Sanyo, Samsung or other battery manufacturers are interested in NVX anode materials further expansion will be required to meet demand.

The market continues to value NVX very highly considering they won’t have significant revenue coming in until 2023.

https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02481150-2A1353746?access_token=83ff96335c2d45a094df02a206a39ff4

I tuned in to the recent virtual investor conference. I took some notes below for those interested:

Two new board members – a former CEO and Chairman of General Motors; the other a finance executive, currently serving as CAO at Dow. Trying to leverage off adjacent industries which they interact with.

Summary of notable announcements (2021 - present)

• Jan 2021: chief scientific advisor joins NVX
• Jan 2021: Anode materials division selected to receive US$5.57m from DOE for furnace technology 
• Feb 2021: five-year research sponsorship with Dalhousie University. 
• Feb 2021: NVX and Emera partner on residential energy storage technology
• Feb 2021: A$115m capital raise
• Aug 2021: Phillips 66 invests US$150m in NVX and becomes a major shareholder of the business
• Nov 2021: Riverside facility is opened 
• Jan 2022: Phillips 66 and NVX sign agreement to advance production and commercialisation of anode materials for lithium-ion batteries 
• Jan 2022: executed supply and investment agreements for 12,000 tonnes with US-based KOREPOWER. 
• Feb 2022: company lists on NASDAQ
• Jun 2022: life cycle assessment results; 60% decrease in global warming potential relative to conventional anode grades. 
• Oct 2022: selected for US$150 DOE grant to build-out NVX’s next 30,000 tonnes graphite manufacturing facility. 

Elaborates on Phillips 66 strategic investment:

• A global producer of needle coke, a key precursor material for synthetic graphite
• Investment will help support NVX towards 40,000 mt/year, expected to be completed by 2025
• Phillips 66 nominated a representative to NVX board

Head to head comparisons - shows benefit of synthetic graphite

The last year has consisted of several significant strategic investments in NVX, including significant tailwinds from the US government, who is really trying to drive the local battery manufacturing industry. This includes tariffs, the inflation reduction act, government funding and tax benefits for companies who source materials locally. In addition to funds injection, there will likely be an ability for NVX to acquire favourable loans with low interest rates.

Update about Greenfield site selection, overview and rendering (facility to support 30,000 tpa by 2025).This will have potential to expand up to 75,000 tpa.

Brief update about Cathode division, which also has potential to grow as big or larger than the anode division. It is however slightly earlier in the process, moving to pilot scale now. 

• Cathode material represents about 30% of the cost of a battery cell
• TAM forecast to grow significantly over the next decade 
• Current process is complex
• NVX will use DPMG technology to deliver higher yields at lower cost, no waste and high nickel cathode materials

Spoke about the importance of BTS division - essentially the heart of the company. It sits at the forefront of product innovation and provides leading insight into the battery development and material technology ecosystem. With that, you also get valuable exposure to possible customers for other divisions (anode and cathode)

Summaries of Q&A session

• Riverside facility coming on line during 2023, in advance of KOREPOWER contract starting in 2024
• Production right now will be focused on contracts they already have and scaling into KP contract and anything else bought online 
• They see reaching Riverside output as being profitable for the company, noting the significant CapEx investment journey that lies ahead 
• Discussion about recycling graphite, challenging to do on the anode side 
• Chris expects to see more government-related incentives etc to ensure business is incentivised to buy local content
• Cathode commercialisation timeline – NVX could elect to scale similar to anode division, or could partner with existing suppliers to utilise NVX technology, but essentially wear the CapEx costs. NVX is still exploring the best commercialisation path for Cathode. In short, commercialisation is some way off.

Novonix Half Year Report to Dec 2021

Novonix released their Half-Year Report on Friday.

Highlights for the Half-Year

•July 2021 – Professor Jeff Dahn joined as Chief Scientific Advisor

•July 2021 – Purchased a 400,000+ sq foot facility in Chattanooga Tennessee enabling expansion to 10,000 tonnes per year production capacity

•August 2021 – Phillips 66 acquired a 16% stake in NVX

•October 2021 – Zhanna Golodryga was appointed to NVX’s Board (from Phillips 66)

•November 2021 – Celebrated the opening of their new facility in Chattanooga Tennessee. To the company’s knowledge, they’re the only company with plans to bring large scale production of synthetic graphite to the US

•December 2021 – Received CAD$1.675M from NGen to play a role in building its Canadian battery materials supply chain, limiting the dependence on Asia.

•Dec 2021 – Preliminary results show NVX Anode Materials synthetic graphite offers approx. 60% decrease in CO2 emissions

Subsequent to December 2021

•January 2022 – NVX acquired a 5% stake in KORE Power and entered into a 5-year supply agreement for 3,000 tonnes per year starting in 2024 with ability to extend to 12,000 tonnes as required

•February 2022 – Commenced trading on the NASDAQ through American Depository Receipts (ADRs).

NVX Battery Technology Solutions (BTS) division

Continues to play a strategic role in supporting growth of Anode materials and development of the Cathode materials and opportunities for the future. Located in Halifax, Nova Scotia, Canada, it has the capability to develop and test in house at commercial scale as well as working with tier 1 customers across the battery value chain. This division is what produces their IP.

The BTS division provides battery R&D services and makes the most accurate lithium-ion battery cell test equipment in the world. This is used by company’s such as Panasonic, CATL, LG Chemical, Samsung, SK Innovation and others.

The existing facility was expanded to 22,000 sq feet in August in addition to a second 35,000 sq foot facility acquired in May 2021. This will enable growth in revenue based activities, cathode commercialisation and new internal development work.

Anode Materials Division

Aim to increase Anode Materials Division production capacity to 10,000 metric tons of synthetic graphite per year by 2023, 40,000 by 2025 and 150,000 by 2030.

While still shipping anode material using Generation 2 furnace systems to SANYO for qualification, both Samsung and SANYO to defer deliveries of subsequent materials not produced by Generation 3 furnaces.

Cathode Materials Division

Leveraging both their DPMG and single crystal cathode IP, the company is working to meet key testing milestones over the next 12-18 months as it expands it’s next phase of pilot-scale with a 10 tonnes per annum capable demonstration line. They expect to progress into full scale cell builds and more extensive benchmarking tests by the end of the fiscal year.

They are pursuing foundational patent applications to further their position as a market leader in cathode synthesis technology and will provide updates as applicable.

Financials

•Revenue up 72% to $4M

•Gross margin 84%

•Employee benefits, Admin, NASDAQ listing and Share based compensation expenses all up dramatically, resulting in a $26.7M loss for the period

•Well-funded with cash of $259M

•Net Assets more than doubled pcp to $374M

•Receipts from customers of $4.4M

•Cash outflow from operating activities of $15.7M

Thoughts

NVX appear to be diversifying away from tier 1 global battery manufacturers (e.g. Samsung). Samsung and SANYO won’t accept any further anode materials not produced using NVX Generation 3 furnaces, due to be installed this year from memory. While this isn’t a major concern, Novonix is smart to look for alternate customers (i.e. KORE). They still have the best anode material qualified by a tier 1 global battery manufacturer and have shown an ability to source new customers. Their BTS division provides them with a strong network of world class customers and potential sales leads for their anode materials.

The company’s Income and Cash Flow statements still look horrible but they’re supported by a very strong Balance Sheet.

EV Tailwinds

Political Tailwinds

Joe Biden announced his plan for a greener America, American made & produced & for the American automotive industry. Below is a summary of the key points relating to electric vehicles (EV) and battery storage - both being markets NVX serves.

Biden will make a $2 trillion accelerated investment... to meet the ambitious climate progress that science demands.

The key elements of the Biden Plan... include:

1. Build a Modern Infrastructure
2. Position the U.S. Auto Industry to Win the 21st Century with technology invented in America
3. Achieve a Carbon Pollution-Free Power Sector by 2035
4. Make Dramatic Investments in Energy Efficiency in Buildings, including Completing 4 Million Retrofits and Building 1.5 Million New Affordable Homes
5. Pursue a Historic Investment in Clean Energy Innovation

POSITION THE AMERICAN AUTO INDUSTRY TO WIN THE 21ST CENTURY

China is on track to command more than four times the global market share compared to the U.S. in electric vehicle production….

Biden will use all the levers of the federal government... and position America to be the global leader in the manufacture of electric vehicles and their input materials and parts.

Use the power of federal procurement to increase demand for American-made, American-sourced clean vehicles. 

Encourage consumers and manufacturers to go clean. Biden will build on their leadership by providing consumers rebates to swap old, less-efficient vehicles for these newer American vehicles built from materials and parts sourced in the United States.

Make major public investments in automobile infrastructure — including in 500,000 electric vehicle charging stations — to create good jobs in industries supporting vehicle electrification.

Accelerate research on battery technology and support the development of domestic production capabilities. …Biden’s historic R&D and procurement commitments will be on battery technology – for use in electric vehicles and on our grid… increasing durability, reducing waste, and lowering costs, all while advancing new chemistries and approaches. And Biden will ensure that these batteries are built in the United States…

Set a goal that all new American-built buses be zero-emissions by 2030, … converting all 500,000 school buses… to zero emissions. 

Establish ambitious fuel economy standards that save consumers money and cut air pollution. Paired with historic public investments and direct consumer rebates for American-made, American-sourced clean vehicles, these ambitious standards will position America to achieve a net-zero emissions future… a clean energy revolution in transport.

https://joebiden.com/clean-energy/#

Keep in mind this proposal still needs to get through congress. I think it’s likely if only due to the fact China has made extensive investments in EVs and batteries and the US can’t afford to be left behind a major global competitor.

With a current facility in Chattanooga, Tennessee & a second expansion in the works NVX stands to benefit greatly from this proposal.

Headwinds

Could the cost of EVs & lack of charging stations create a headwind for NVX?

According to the NY Times:

The single biggest cost of an electric car comes from the battery, which can run about $15,000 for a midsize sedan. That cost has been dropping and is widely expected to keep falling thanks to manufacturing improvements and technical advancements. But some scholars believe that a major technological breakthrough will be required to make electric cars much, much cheaper.

https://www.nytimes.com/2021/03/31/business/biden-electric-vehicles-infrastructure.html

In addition to having the best performing anode on the market, NVX addresses both the cost & technological breakthroughs mentioned. The company’s proprietary DPMG manufacturing method (see DPMG straw) significantly reduces the cost of anode production & is environmentally friendly compared to the chemical purification process, involving hydrofluoric acid, used to purify natural graphite. While natural graphite is significantly cheaper than synthetic; DPMG helps address this headwind.

NVX also has the technology for a million mile battery and >500kms on a full charge. Those who park on streets in major cities may also be reluctant to purchase an EV until chargers are installed. It’s been proposed malls may fill this need to lure customers back to physical shops. Malls have access to cheaper electricity and ample roof space for solar panels.

With their IP for anodes, cathodes, electrolytes, DPMG and furnace technology, NVX expects to compete with Chinese anodes on price. However, this may be a moot point with Biden declaring he wants American made and the automotive industry wanting a supply chain independent from China.

Me thinks the market is being short-sighted. Me thinks I am being presented with an excellent opportunity. 

This is a business with one hell of a runway in front of it. A few years ago, I bought Novonix at current share price levels. It then had one hell of a ride, with the share price rising to $12.00 due to what I think was a combination of hype, FOMO and euphoria for the EV industry. This was a ridiculous valuation at the time. I packed my bags, tipped my hat, and said ‘see you later, hopefully soon’ (sold my shares) despite thinking this was a gem of a business with enormous potential.

The share price is now back to levels seen around two years ago. But here is the catch: the business has matured in this time, and I am of the opinion the risk/reward proposition has become far more favourable. I published a business overview and my thesis well over a year ago (on this site) and this hasn’t changed, although their prospects have. I won’t repeat these here so go and check this out if you are interested. My straw last week summarised their achievements/updates since Jan 2021. The business and the management team, up until this point, are executing as expected. But over this time, their tailwinds have strengthened significantly, for a number of reasons:

• First mover advantage in the US and the only domestic option in the US ready(ish) to scale. There is also an economical moat developing here – it is both expensive and time consuming to open up factories and start producing synthetic graphite, and that’s without even mentioning Novonix’s IP.
• The 'China is bad, US is good' view has intensified over the last 24 months. Novonix will only benefit from this, with China currently producing around 60%-80% of the world's graphite.
• The above point has resulted in significant US government support, which will result in a combination of grants, favourable loan terms, taxes, and tariffs -- to help the domestic supply chain of critical materials onshore. The Inflation Reduction Act 2022 refers.
• Phillips 66’s strategic investment in Novonix (acquiring 16% of the business), providing Novonix with access to petroleum needle coke – the key precursor material for synthetic graphite.
• Strategic investment in KORE Power, with an agreement to provide them with 10,000 tpa commencing 2024.
• Chattanooga, Tennessee – where Novonix has factories – is shaping up to be the next ‘Silicon Valley’ for all things US battery related.
• Chris Burns and the board are demonstrating an ability to walk the talk with government and rub shoulders with important stakeholders.

Battery production and all things batteries continues to shape up as one of the most important things society will produce over the next decade, fuelled by EVs and storage requirements. If Novonix can maintain their competitive advantage (something to watch) they will be your classic ‘pick-and-shovel’ play in the industry.

If they are producing 40,000 tpa by 2026, as anticipated, this will likely result in the business earning more than 400m from their anode business alone. I have intentionally disregarded the blue sky and opportunity associated with their cathode business to help balance out investment risk, but this could again also add enormous value to Novonix’s bottom line in the next decade.

The market is forgetting their future earning potential, for good or bad. I don't think the business is priced to succeed. And for many more, Novonix presents itself as a risky investment with a horrific balance sheet (and they aren’t wrong re: the latter). And true, there are risks: i.e., Novonix struggling to acquire cash (it will need lots), experiencing delays or major issues with bringing production online at key sites, or innovation rendering Novonix technology obsolete. But when you look under the bonnet you may be surprised – they have the potential to be an absolute behemoth in ten years’ time and my view is the chances of this occurring have improved significantly over the last 24 months.  

So what is the catch? You have to understand the business proposition, and then wait and be patient. Their balance sheet will remain appalling for the next 12 months, at a minimum. And there will likely be dilution here because the reality is Novonix will need lots of cash. The market won’t like this; many likely won’t understand why this silly business continues to spend millions without earning any significant revenue. Heck, the share price could again halve over the next year. But I think those that are willing to be patient and put up with the volatility are being provided with an opportunity here. I will post my rough valuation next week.

This article discusses recent Chinese investment in anode, creating what might be oversupply and potentially setting up the market for a slowdown on the back of overcapacity.

It is a risk and a bear case argument to be aware of, but as the author also points out, much of the potential oversupply will be poor quality anode.

The investment thesis for Novonix is high quality anode produced in the USA, reducing the current Chinese monopoly. Frankly, it is widely anticipated that Novonix-produced anode will be far superior to Chinese anode and produced in a much clearer, greener way.

Novonix has entered into a joint venture (JV) with TAQAT – a leading Saudi Arabian energy company – to produce battery materials in the Middle East and North Africa (MENA) region for use in EV and energy storage system applications.

Key points:

• NVX, with its leading battery technology and capability, will develop a graphite anode materials facility with capacity of 30k tonnes per annum.
• JV is split 60% (TAQAT) and 40% (Novonix). Both will contribute their share of operating and capital costs for engineering and facility construction and operation. The JV has been in discussion since 2021, demonstrating the slow burn required in this industry.
• Novonix will contribute its IP on a royalty-free basis to produce high-grade graphite anode. The project is expected to provide Novonix with ready access to precursor material as feedstock for critical battery materials, in addition to access to developing end-use markets for the manufacture and sale of EVs and energy solutions.
• Target to begin construction in Saudi Arabia in 2024.

The JV will provide Novonix with financial support and relevant materials to operate in Saudi Arabia, who desperately need to secure anode supply themselves given their 2030 EV goal (30% of all vehicles to be electric).

This is significant for a number of reasons. It confirms Novonix is looking to expand beyond the US, and is happy to partner where appropriate to ensure it doesn’t bite off more than it can chew. This is appropriate in my opinion – Novonix as a priority needs to secure funding support, precursor materials and an end market to support any expansion it makes. This deal ticks all the boxes for expansion into Saudi Arabia and will likely provide the company with a platform to supply the broader area in the coming decades.

This deal has likely been spearheaded by Andrew Liveris, a prominent businessman and a member of Novonix’s BOD (his son, Nick, is also the CFO). Frankly, Novonix pay Andrew far too much money annually, but there is good reason for that. He is on the board of Saudi Aramo, the second biggest company (market cap) in the world. He is also the chairman of Lucid Motors, an EV manufacturing business in the US. I could go on and on re: Andrew, but my view is his connections to Saudi Arabia and the broader MENA have enabled this deal – with likely more to follow in the coming years.

To provide some very rough calculations of how this expansion/facility might impact future earnings. With estimated graphite anode prices (approx. $14k AUD per tonne), this facility could be spitting out annual revenue of around 420m within the next few years. Let’s halve that to provide conservative coverage of COGS/Capex costs, equaling 210m -- 85m of which Novonix will be entitled to.

Novonix for me fit the bill – impressive management and BOD team, world-leading IP and significant US government interest/support for Novonix to succeed. They have already been granted $US150m by the US government and will highly likely be provided with a favourable loan to assist with the construction of its US greenfield project. You can now add Saudi Arabia to the list, who have a powerful agenda of their own to secure a graphite partner to support its EV rollout.

I don’t want to sound too bullish here (my graphite obsession is like @Strawman's bitcoin one ????) but I believe we are witnessing the investment of a future cash cow in the making. It won't be pretty short term, and the economic environment is not currently favourable for a business like this, but for those members that can tolerate the volatility, I urge you to check out the opportunity at play here.

NVX and LGES enter into JDA and US$30M investment agreement

A good announcement from Novonix this week, who have entered into a joint research and development agreement (JDA) with LG Energy Solution (LGES) for synthetic graphite (SG) anode material. This is intended to lead to the option for LGES to purchase up to 50k tonnes of anode material from Novonix’s US-based facility over a 10-year period. In addition to the JDA, LGES will provide Novonix with an investment of US$30m – Novonix in return will issue this much worth of unsecured convertible notes, with a 4% coupon and a maturity date in 2028. The notes will be issued with a conversion price of AUD1.60 per ordinary share (noting this is essentially a 60% premium on the current share price).

My thoughts:

• This is as tier-1 as it comes for Novonix, with LGES currently investing significantly in US expansion in conjunction with automotive manufacturers (Hyundai, GM etc). They are almost top of the list in terms of ideal partners for Novonix.
• Novonix are taking the majority of risk, but LG are dangling them a carrot and have come to the table with a 30m investment/commitment. Chris Burns (Novonix CEO) has said publicly that LG obviously require far more anode than the 50k initially agreed and there is scope for the agreement to expand – my view is if Novonix are able to produce a custom product LG are happy with, LG will very quickly look to increase the supply arrangement. LG will also be incentivised to put their business through Novonix – LG could effectively own a good chunk of Novonix following issuing of notes/shares so it will make sense to support them if the product is right.
• Novonix are currently going through the loan process with US DOE but require supply agreements to progress. I am not sure if this deal will classify as a supply agreement and meet what the loan office want – my initial thoughts are no but I could be wrong.
• This validates Novonix’s base SG product somewhat and confirms that they are willing to custom-produce for the major tier-1 players.
• LG will get a 6-year exclusivity with any SG product developed as a result of the JDA. This favours LG enormously, but I don’t blame Novonix for compromising here. If LG are happy with the product developed from the JDA (noting they will require LOTS of anode), there is potential for their demands to basically wipe out all the supply Novonix has on offer and then some. Novonix might not have much bargaining power now (with LG, anyway) but they will if this product is up to scratch.
• The extra $US30m gives Novonix far more breathing room in terms of capital. They have well in excess of 12 months of capital and will likely have secured a DOE loan in this time. This de-risks the balance sheet and suggests further capital raises are highly unlikely.
• On the downside, Novonix will be guaranteeing supply of available graphite/anode for testing/development, receiving no payment in return (yet). This is supply that could otherwise be allocated to supply deals that will actually result in revenue. I am OK with this, Novonix are taking a long-term view to secure what in my view is the most attractive partner in the US at the moment.

The major things to watch for Novonix going forward are future supply deals/agreements, the DOE loan decision and selection of their Greenfield site (additional 30,000 tonnes).

The loan decision in particular is the key risk at the moment. I would suggest they will almost certainly be granted this, but should for whatever reason Novonix fail here it will delay their Greenfield expansion significantly and absolutely smash investor sentiment.

I remain extremely bullish – ‘build it and they will come’. This is a company making significant investment into its future, targeting a niche product expected to soon be in deficit. Short term, this investment will look crazy for some, and fair enough, but I think those that can tolerate the volatility and the horrific balance sheets will be handsomely rewarded in the next few years. 

Thoughts on Novonix FY21 App 4C

Novonix released their App 4C & quarterly activities report today

Highlights

•Receipts from customers up 42%

•Cash outflow from operating activities down nearly half from $1.8M (average quarterly taken from YTD $7.245M) to $987,000

•Investment in PP&E doubled to $13.7M for the quarter

•$136.7M cash in bank

No surprises with regards to investment in PP&E as the company has announced their expansion into “big blue” – a new facility which will bring their production capacity up to 10,000 tonnes/year by 2022. They are also expanding their R&D facility in Nova Scotia to act as a commercial scale pilot plant for their cathode materials.

The biggest takeaway is the drop in cash outflow from operating activities. With only 2,000 tonne/year production capacity Novonix is on their way to cash flow positive once their “big blue” Alstom plant is finished and they can sell 10,000 tonne/year (completion estimated for 2022). Novonix Battery Testing Division (BTS) will further support this as revenue is forecast to grow from ~$5M currently to $10M in the next couple years.

This point is quite subtle, but it highlights the inflection point NVX is approaching over the next 12-18 months. However, at a 2022 forecast P/S of 8x this inflection point has already been priced in.

NVX announces that the Board of Directors has resolved to cancel the Share Purchase Plan due to the share price currently trading below the Share Purchase Plan offer price of A$2.90.

The Company currently has no intention to re-issue the Share Purchase Plan at a lower price.

This was following a succesful $131M capital raise to institutional & sophisticated investors and directors at $2.90/share to fund the scale up of anode material production & growth projects.

The successful raising allows NVX to fund capex to increase production of anode materials to 10,000 tonnes per annum.

NVX were originally expecting 25,000 tonnes by the middle of the decade. This CR allows them to significantly acclerate their growth & suggests the company sees strong demand for their product.

Additonal notes:

Capital build out costs expected to be approx $5M per 1,000 tonnes of capacity

With current capacity of 2,000 tonnes my math gives ~$107M to expand to 10,000 tonnes leaving them with $24M.

https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02361053-2A1291278?access_token=83ff96335c2d45a094df02a206a39ff4

Synthetic vs Natural Graphite & Chinese Competition

Novonix has 3 operating divisions with their battery materials segment their main driver of growth. While they have IP for all 3 components of a lithium-ion battery (anode, cathode and electrolyte), they’re strategically focused on the anode side of the battery.

The Problem

The industry standard is for a graphite anode and either natural flake graphite or synthetic graphite can be used. Synthetic graphite supply is less affected by disruptions faced by mining & processing, performs better but costs twice as much and is energy intensive. As a result it’s common for battery manufacturers to use both synthetic and natural graphite to reduce cost.

The Solution

Novonix’s patented DPMG process (https://images.app.goo.gl/V3y6Bv1KU8Zv4TvU9) addresses the cost and energy concern while enabling a superior product.

•Enables yields of 100% versus an industry average of 50%

•Traditional process (CSTR) costs as much as the raw materials (using DPMG NVX avoid this cost)

•DPMG produces no wastewater or particle waste – compared to a traditional plant that can produce up to 99,000L/day of wastewater and fine particle waste

•Fewer processing steps (as seen below) resulting in less energy consumption

•DPMG enables cheaper nickel oxide feedstock to be used over nickel sulphate

The problem – Chinese Competition for Synthetic Graphite Products

China produces most of the worlds synthetic graphite using energy intensive open pits in their graphitisation process. China uses a “dirtier” feedstock of coal coke at very high temperatures leading to the release of ash and resulting in an inferior product. Coal coke (synthetic) as well as natural flake graphite used in anodes need to be purified to remove impurities. In China this is done with poisonous hydrofluoric acid creating environmental concerns.

The Solution

To create their synthetic graphite anodes, Novonix uses a “cleaner” feedstock of petroleum needle coke sourced locally in the US. As a result, Novonix requires no mining, milling or purification while exceeding minimum battery standard purity levels and providing the company with an ESG, cost and performance advantage over Chinese products.

Outside of China, Novonix is the only company with an anode qualified by a tier one global battery manufacturer. They have an MOU with Sanyo Japan and a conditional sales agreement with Samsung SDI South Korea for 2,000 tonnes. The Samsung agreement will commence a 9-month qualification process post installation of their new furnace system scheduled for late 2021.

Retail entitlement offer heavily oversubscribed

The Retail Entitlement Offer closed at 5.00pm (Sydney time) on 18 June 2020. The offer was heavily oversubscribed with applications under the top?up facility significantly exceeding the New Shares available under the Retail Entitlement Offer. As a result, only a very small amount of shortfall was available for allocation ($1.3 million or 3.3%).

New shares to be issued June 25th and are expected to commence trading on June 26th.

https://asx.api.markitdigital.com/asx-research/1.0/file/2924-02247073-2A1232053?access_token=83ff96335c2d45a094df02a206a39ff4

Management

Exceptional management team led by Philip St Baker - proven track record, energetic, talented, honest with plenty of skin in the game (~40% between management and board).
Board and management possess extensive experience in battery development, resources, advanced materials.

Background

Novonix serves a diverse range of customers around the globe as their anode product is expected to be used in electric vehicles (EV).
Lithium-ion battery will dominate EV industry - they're lighter and have a higher energy capacity.
Not a highly capital-intensive industry but it is highly competitive (think arms race); competitors should narrow down over the next 10 years.
Massive demand for EV in next couple years as EU enforces stricter carbon emissions laws.
Battery costs are declining, it's possible that by 2022 EVs will be cheaper than gas powered cars.
Novonix has an R&D branch at Dalhousie University in Canada and established a company called Puregraphite in Tennessee to develop and manufacture their anode materials.

Their battery testing equipment (BTE), high precision calorimety (HPC) is the best in the world and patent protected - allowing batteries to be tested in a matter of weeks vs 6 weeks - months traditionally.  This accelerates their R&D tenfold.  Their equipment (HPC) allows them to process, build and test their batteries in 2 months, in house, compared to 9 months normally.
They sell this HPC tech (BTE) to major global players - Panasonic, CATL, Samsung, SK Innovations etc. giving them a foot in the door.

R&D
They're sponsoring external research meaning they have first right to IP out of the lab; which includes 12 PhD students working under a Mark O.
In process of filing a 2nd patent for cathode side of batteries (everything mentioned previously is regarding anode) - potential here is to develop a silicon infused graphite as it can hold more capacity (longer battery life).
The Canadian government matches their funding costs.
 

Market

Anode material market is $2B industry but is expected to increase tenfold to $20B in 10 years.
Projections as of mid 2018
2023 - 300kt - $250 - 500M
2030 - 1300kt - $750 - 2000M
*revenue = $10/kg - $20/kg
2 global battery makers have qualified their materials to use in their prodcuts - no other company has announced they've qualified an anode product with a global battery maker.
Additionally, they have several global battery makers testing their product with NDAs in place for their anode materials - first movers.

Battery producers (think Panasonic etc) are expanding rapidly and need more suppliers, more competition and lower prices.

They've developed and proven their product on a small commercial scale and are currently building their own commercial plant which is small but will demonstrate their capability.  They feel they are right at the cusp and are not pumping in lots of capital until they have long-term contracts.

Sales HPC grows at 30% p.a. expect it to continue.  More a strategic opportunity than commercial. 

Novonix have a great legacy asset in natural graphite deposit (mine) in Australia.  Looking to bring in experienced mining partner that want to take it forward but have not expanded on this much as to how it might impact the company down the track.

Novonix are not yet profitable but feel they are on the cusp.
Current ratio 1.3
D/E ratio 1.4

Capital Raising
Recently raised funds by taking an unsecured loan with St Baker Innovation Fund for $3.4M as well as management, Philip St Baker and Dr Andrew Liveris also lending $1.75M and $0.934M respectively at an interest rate of 8%.  This is to be used for US manufacturing and working capital. 

“Given the current market conditions, the Company has determined that the loans are the most suitable financing option at this time.”

Debt is a concern but if management is willing to put up their own money for a short-term unsecured loan they must see potential and really believe in the company.

Conclusion
Novonix possesses a competitive advantage with a moat and being first movers.  There is high risk as with any small cap but I feel there are more than enough positives to counter the risk, some of which are a talented, underpaid management team with a proven track record in this space and with skin in game, quick turnaround of the company from obtaining patent/IP to commercial production (3 years), early movers, unique and superior product, R&D department expected to be profitable as well as high quality R&D department, foot in door with global customers.

NVX CEO Phil St Baker
https://www.youtube.com/watch?v=yZ9c6Tz06fU

Highlights:

Expects NVX to be delivering new product to Samsung located in Korea by end of year. Also, watch for a supply agreement with Sanyo (who have factories globally, including NA).

For those interested in Novonix (Synthetic) vs Tolga (Natural) as an investment.   I learnt a great deal from this video - all holders of Novonix and Tolga should watch....

https://www.youtube.com/watch?v=bHsLB9LhP6E&t=11s

For those holders of Novonix and Tolga, I recommned you watch this video here

Novonix names noted North American researcher Prof. Jeff Dahn as Chief Scientific Advisor

• Appointment effective July 2021

• Professor Dahn to retain partnership role with Tesla

Shares are up 12% toaday, is this because of Tesla Reference ?

Disc: I hold

Novonix and Dalhousie University Enter a New Research Sponsorship Agreement

~Novonix will extend its sponsorship of Professor Mark Obrovac’s Research Group for a subsequent 5-year term under a new agreement

~ Novonix will have first rights to IP developed from this agreement

~The Canadian government’s NSERC Alliance program will contribute CA$2.2M over the 5-year term

DISC: I hold

PUREgraphite (USA)
The Shelter in Place orders in Tennessee that commenced on Saturday, 4 April 2020 expired on Friday, 1 May 2020 and businesses have been permitted to reopen on the condition of compliance to specific COVID-19 procedural requirements.

Our PUREgraphite operation in Chattanooga Tennessee reopened on Monday 4 May 2020 and our team has commenced the restart of the anode manufacturing plant. It is expected to take a week to resume production of finished product.

During the four-week COVID-19 shutdown our staff were actively engaged in desk-top work documenting and auditing our operating and quality systems and procedures, along with engineering, procurement, sales and marketing activities. These were all able to be performed remotely from home and through virtual teamworking.

NOVONIX Battery Technology Solutions (BTS) (Canada)

NOVONIX BTS in Canada continues to operate with split shifts, work from home and virtual teamworking arrangements in line with local orders from government agencies relating to COVID-19.

All elements of the BTS business are progressing as planned and we remain on track with all pre-COVID-19 revenue targets for the business.

https://www.asx.com.au/asxpdf/20200506/pdf/44hlp7d0pg14sh.pdf

Novonix released their investor presentation today. Highlights:

1. Novonix anode beats all competitors for battery life (including Tesla)

2. Novonix anode offers the best capacity retention (less range loss over time for EV) including vs Tesla

3. DPMG cathode is under development

4. IP being filed for long-life electrolytes

5. Touched on breakthrough dry particle microgranulation method that can be used for anodes and cathodes with a 100% yield (no waste) opposed to current methods that have significant loss. DMPG also uses no wastewater or materials and a lower cost.

6. Immediate opportunities to use DPMG in house for anodes. Have also filed patents for this.

7. $5M of funding raise will be used to test DPMG at pilot scale and proceed to full-scale processing for cathodes, with $3.5M being used for the current anode side of the business.

8. Cathode material market is $US 7B and growing 13% YOY



 

NVX released their 2020 Annual Report

NVX currently generates revenue from their battery technology division (battery testing equipment)

Revenue from battery tech div up 234% yoy

NVX will soon be generating revenue from their battery materials with first shipment due within weeks

NVX also own the rights to a graphite mine in Australia but has put this on hold for now

Loss for year $19,478,283 down from $25,312,516 in FY19

Balance sheet is strong following capital raise

Net cash outflow from operating activities $5,591,517

Pg 81 lists segment revenue – we should see a big uptick in revenue and cashflows in FY21 (assuming everything goes to plan) as the battery materials segment is what will drive the company going forward.

The one thing I could not find is R&D cost. NVX CEO has stated in previous interviews that the battery tech division funds their R&D; however, this hasn’t been displayed anywhere. What might be more likely is the funding they receive from the Canadian government, $785,154 this year, covered all their R&D expenses (carried out at the University). If anyone has any further insight into this it would be appreciated.

NOVONIX (NVX) is expanding its anode materials business in the US state of Tennessee. The company advised it will fulfil its contractual obligations in purchasing a new major plant. NVX has plans to retrofit the building, formerly held by Alstom, to become its second facility in Chattanooga.

The new plant will produce in excess of 8000 tonnes of anode materials per year, taking NVX's total annual production capacity to 10,000 tonnes. Unfortunately there are various reports as to when the new facility will come online - they vary between a year or two. 

The company is negotiating agreements to supply anode materials to international battery producers for use in electric vehicles and energy storage.

NVX highlighted that it was well-positioned to meet the growing needs of the battery supply chain in North America. This phase of growth will support the integration of anode materials in lithium-ion battery packs for over 100,000 electric vehicles.

The market reacted positively, up 6%.  

The company continues to progress agreements with lithium-ion battery producers Sanyo Electric Co in Japan and Samsung SDI in South Korea.

Brief company overview

The company develops and supplies materials, equipment and services to the global lithium-ion battery industry and has operations throughout the US and Canada, with sales in more than 14 countries.

DISC: I hold

Emera Technologies and Novonix Partner on Innovative Battery Technology

•  Partnership to develop and manufacture energy storage systems for community microgrids
•  Significant opportunities throughout North America
• Disc: I hold

Share Cafe are having a DD on NVX on Thursday 11.30, for anyone interested. cant talk to quality of analysis

Hey CanadianAussie, massive call out for you on The Call today (Pick 7 - Novonix). Worth a listen if you haven't already...

I guess the Q Appendix 4C is due soon. Last year the 4C was January 28th.

Announcement just hit Reuters. US is looking to sure up its EV supply chain for the future with a $2.8 billion infrastructure spend on grid and battery technology.

https://www.reuters.com/markets/us/us-awards-28-billion-ev-battery-grid-projects-2022-10-1

I suspect NVX may have been granted access to some of this upcoming funding. Announcement likely before opening tomorrow.

After reading @Rocket6 valuation of $2.90 (thanks for the great write up btw!), I just wanted to add that Morgan's have it at a similar level at $3.11: https://www.fool.com.au/2023/01/02/23-asx-shares-to-buy-in-2023-brokers/ (sorry couldn't find a better link!)

NVX Investor Webinar – Technology Roadmap

12/06/2020

Introduction:

•The materials market to service EV industry is going to grow to US$100B over the next decade

•Will be starting new arm of company around cathode production

•Investigating a North American listing on OTC market

•Have various battery analysis technology patented (e.g. differential thermal analysis – to assess electrolyte degradation over time)

•Goal higher energy per production cost (anode, cathode etc)

•Working on future battery tech that you hear about such as solid state batteries

•These are going to start gaining adoption around 2030 – long runway to target this growth

•DPMG can be used for a number of different raw material inputs – means they can make new materials that weren’t previously possible. Can enable a whole new class of materials – are exploring this while scaling battery side and DPMG can make everything in today’s tech cheaper with the dry method.

•Agreements in place with Samsung for 500 tons later this year then working towards a longer supply contract

•Sanyo – non-binding MOU to assess anode materials – will work towards signing a supply contract to support Sanyo’s expansion.

•No other company has accomplished agreements with global battery manufacturers - NVX is the only company to break into this market and have a supply contract

•Cathode and anode market is going from US$10B today to US$50B – $100B in next 5-10 years

•NVX has an R&D collaboration with Samsung on new materials

Anodes:

•NVX have a low cost production method

•Manufactured in the USA – Global battery manufacturers are determined to source supply chains from outside China – NVX only one who can currently do this. They plan on opening up a European factory (2022-2025) and to continue to co-locate with battery manufacturers in 2026 and beyond.

•Highest cycle life, highest first cycle efficiency and capacities – this is what everyone [global battery manufacturers] are looking for.

•NVX anode best in industry

•Offer best battery life compared to competitors

•Offer best capacity retention compared to competitors – better capacity means less range loss over time for an EV

Cathodes:

•Novonix’s DPMG involves dry synthesis of high nickel materials at a significantly lower cost

•Single crystal cathode materials (patent filed) – will be future of batteries and is essential for million-mile class of batteries. NVX has this with their dry synthesis method (DPMG). Materials are more robust in the single crystal form. Poly crystals crack after extended cycling which leads to capacity loss [battery can’t hold as much charge]. The single crystal method is very robust and resilient to cracking achieving much longer cycle lives. See graph below.

Single crystal (red) Polycrystalline (blue)

Electrolyte

•Serves as medium for lithium ions to be transported between anode and cathode.

•Dictates life of battery – electrolyte reacts with cathode and anode – rate of reaction is what eventually leads to cell failure.

•NVX electrolytes outperform benchmark electrolytes under long-term cycling at 40deg C at no extra cost.

•IP starting to be filed from results of work around high performing electrolyte packages

What this means

To enable a million-mile battery you need long-life anode, long-life cathode, and electrolytes to allow those materials to cycle continuously. Putting all of above NVX tech together – PUREgraphite anode + Adv electrolyte + SC Cathode = huge capacity bump in retention relative to traditional materials – this is what will allow the million mile+ battery of the future. This is all achievable at 40deg Celsius.

NVX plans to be a tier one global supplier in this rapidly growing advanced materials market

More to come as their research continues - numerous other IP and patents filed

*refer to their recent ASX announcement for revenue, capex and forecasts

Takeaways (opinion only):

There’s still room for them to sign an agreement this year in addition to the Samsung one. I have been very skeptical up until this point, but I now believe we will see a Tesla collaboration this year and possibly announced at Elon Musks’ upcoming battery day.

It’s been obvious NVX has the best battery technology for anyone familiar with the company. Not only do they have a huge moat but with the announcement they are able to pursue other battery tech such as dry cell batteries I can see NVX positioning themselves as the number 1 battery (materials) manufacturer/supplier over the next 10+ years. By positioning themselves as a global leader, continuing to file numerous patents, and continuing to aggressively pursue R&D NVX are limiting the ability of competitors to enter the market.

With NVX’s exposure to the anode, cathode and (pending) electrolyte side of batteries I believe they will be a battery manufacturer one day.

What’s exciting about the DPMG patent is that it opens numerous possibilities in other industries. NVX can lease this IP out as an additional revenue stream through royalties or licensing fees or NVX could spin this core competency into an entire new company.

Disclaimer: I hold a position in NVX.

NVX’s Group CEO Dr Chris Burns presented at the ASX Small and Mid Cap Conference this morning. I found the Q&A portion afterwards to be particularly valuable.

I asked Chris the following:

Q: Do you have any updates or clarification on any future revenue streams possible from your DPMG patent? Is this something you could licence out to other industries?

A: It is something we can licence to other industries. Still trying to develop other IP around it and still learning things every day. Filing a number of patents that will be announced over next weeks and months. No revenue or guidance at this time. Will start exploring revenue streams in other industries in 2021.

Other questions asked (apologises for missing some questions) and answers:

A: Production going well. Staff levels approaching 20 up to 50 over course of year as they move to full shift work across all processes. Shipping material to Samsung this month. Have worked on a plan with audit and supply chain team there. Multiple deliveries over coming months leading into their mass production in April of 2021. Make sure they have material on hand before production.

Cathode business – over next 12 months scale into pilot, develop a lot more IP, continue to file patents and begin to work with potential partners – OEM, battery manufacturers or other cathode producers. There are many cathode competitors with reasonable market share and trying to grow. Their opportunity is to bring processes and materials to outside of Asia. This emphasis a previously touched on point – manufacturers want a secure supply chain outside of Asia/China.

Q: Competitors:

A: Closest competitors are incumbents. Mentions synthetic Hitachi chemical out of Japan and Chinese companies. Stressed that NVX is not head and shoulders above the rest but they can be competitive or better at better prices and outside of Asia. It’s not about displacing tonnage (quantity) but taking incoming market opportunity, particularly outside of Asia. Phase 2 plan to go to Europe. As they become qualified supplier there will be strong support of American manufactured.

Q: External forces that could hinder EV market?

A: He doesn’t really see many.

Q: When asked about Tesla (apparently there were a lot of questions on this)

A: No public comment around Tesla but at the same time stated Tesla wants to have their batteries built in house and “They are the type of company we want to work with”

Next 10 years hope to be a primary supplier of cathode and anode materials and licensing electrolyte materials. Want to be a household name in batteries.

Q: When asked about dry cell batteries:

A: (Mentioned the company Quantumscape) our opinion these tech are still not ready for prime time. Need million-mile battery tech, thousands of cycles. Everything public around these technologies – they’re just not able to achieve these types of cycle lives. Can be used in things like drones, longer fly time but less cycles needed. But have to last and be proven for thousands and thousands of cycles and decades of life.

Me: Keep in mind manufacturers have sunk millions (?) of dollars into lithium-ion facilities and processes so any new tech will not only have to be proven but will take time to displace existing tech – such as lithium-ion.

Q: Top priorities next 12 months:

A: Operational execution, scale plant, fulfil Samsung contract, work on other contract engagements and continue to develop next products in pipeline. Increase life, energy density, lower cost to stay competitive in market. They have foot in door now time to execute and grow. Continual tech development on cathode side – widen portfolio around IP and bring pilot production online to demo technology – same as they’ve done with anode.

Thoughts

Whether it’s Dr Burns or Mr St Baker, management continues to under promise and over deliver. Originally stated first shipment would be October, today stated end of month (September).

Management continues to be realistic about the competitive landscape. Dr Burns today has again emphasised that while they have ambitions to be a household name they’re not claiming to displace all competitors but to take incoming market opportunity. CEO Phil St Baker is also realistic stating earlier in the year that the industry is an arms race with many players.

It’s exciting to hear they expect further announcements around patents, potentially within weeks to months. The share price has historically reacted positive to these announcements.

Also of note, Dr Burns hinted at MOUs or agreements with other customers that they are unable to disclose due to confidentiality agreements.

PUREgraphite Awarded US$5.57M from the U.S. Department of Energy (DOE) for New Technology Development

? Grant funding will support the development of a new, continuous high efficiency furnace technology for lithium-ion battery synthetic graphite material

? PUREgraphite is partnering with Harper International and Phillips 66 for this funding opportunity

This U.S. Department of Energy FOA specifically highlighted processing of battery critical minerals including synthetic graphite. The submission from PUREgraphite, based in Chattanooga, Tennessee, was the only graphite-based project to be funded under this FOA.

DISC~I hold