Why I believe Novonix will succeed

There was a bit of negative posts after the Lucid Air reveal this week, and some upset Novonix wouldn't get a deal with Tesla etc. My wife was asking me if we'd made the right choice to place so much money with NVX, so I felt, for my own sake as well as perhaps other new to Novonix, to lay out a case as to why I believe Novonix will succeed and flourish over the next 5-10 years.
I'm sorry it's a bit of an essay, but hopefully for those newer to Novonix, provide at least a little assistance in deciding to invest or stick with Novonix past Battery Day. More experienced holders have stated much of this over various threads as well.


Why I Think Novonix Will Succeed (and thrive!)

1. Technology

Since Novonix have the best battery testing equipment in the world they would have a very good idea on just how good their PUREGraphite anode materials are, and have a lot of confidence in it. Samsung SDI and Sanyo obviously have at least some confidence in it as well, as otherwise they wouldn’t have signed the early agreements and MOU etc.

DPMG could well be a game changer – this, if the possibilities are proved true, will be an understatement. They can engineer micron-sized particles with a dry process – something I believe has not been achieved before. The process is both more environmentally friendly and cheaper than traditional methods. Jordan in The Limiting Factor said they were still working on improving the efficiency of the resulting materials, which were slightly under benchmark figures in the early stages of working out the process. If they have this worked out, then the sky is the limit!

2. Dalhousie Uni

The links to Prof. Mark Obravac and his lab at Dalhousie has already yielded results with DPMG, and I’m sure will reap other rewards down the track. This lab, together with Novonix’s own R&D lab in Halifax should provide further leading technologies to keep Novonix near the top of the tree as far as battery tech goes. This would especially be true if they can find further yield from DPMG – eg. graphene coatings of various thicknesses and uses. Obviously the proximity to the king of Li-ion batteries in Jeff Dahn probably wouldn’t hurt, and could be a back door channel between Novonix and Tesla etc.

3. Management

I didn’t do too much research on management when I first learned of Novonix, but I now have growing faith in them. Having a scientist in charge of the running of the main company in Dr Chris Burns means tech should remain the focus, not making money. At this stage of their growth, it is the right way to go – establish yourself as a big player with the best tech, then reap the rewards in the years to come.

As others have said, Andrew Liveris and Admiral Natter would no be on this Board if they didn’t think it could grow into something seriously substantial. Let’s hope their extensive links with Govt, military and other important players in the battery/EV world will pay off.

4. No Debt

Someone may correct me if I’m wrong, but the $63mill equity raise in June cleared the company of all substantial debt, so are basically debt free. Thus Novonix can concentrate on growing the business without the worry of debt. Mind you, I wouldn’t mind if they did find favourable terms for a loan to speed up scaling their production, esp. if it were govt back loans!

5. Multiple income streams

While the Battery Testing Service will continue to earn small amounts of revenue, it is currently materials that will provide Novonix with its largest income streams over the coming years. PUREGraphite anode materials should start receiving first income from Samsung over coming months, and hopefully will be the start of much larger revenue in the coming years. If they can produce anode materials for USD$5000 per ton and sell for c.$13000 per ton, they would have decent margins for such a small scale. If this price is correct, I would assume it could reduce with scale, and possibly still further with DPMG. They could compete with anode materials out of China, and could potentially become a dominant player in the US and Europe if they can do this quickly.

Cathode materials may be up to 2 years away before coming to market, but if they get it right with the DPMG process, the margins in this area would be larger than anode materials and certainly worth the wait! Electrolytes may come to something as an extra revenue stream too if things progress.

Silicon-Graphite anode materials looks to be the future in the mid-term, and I look forward to hearing more about their patents for this and whether it can easier be implemented in their current PUREGraphite factory. This is important to staying at the forefront of the industry. We know they’re working on it.

There is also the possibility of royalties for DPMG and may come from multiple sources and be ongoing for many years.

6. Greener tech than Asia

I have seen criticism of using Graphite, esp synthetic graphite in BEVs as it still creates some greenhouse gases, Novonix is certainly working to make their products more environmentally friendly than that produced in Asia. DPMG saves huge amounts of wastewater compare to traditional methods, and much of the power to produce the synthetic graphite I believe comes from hydroelectric power in Tennessee.

7. Supply chain

Novonix are currently the only manufacturer of synthetic graphite in North America – The US Govt and many other companies are looking to their supply chains and reliance on China. Novonix is definitely a play on helping the US cut a part of the supply change of battery materials from China (which currently has 82% of the anode market)

8. Like father, like son

If you were a billionaire and your son wanted to join a company to make a name for himself, you could probably (with your contacts) find a nice cushy job anywhere. Nick Liveris works for Novonix. Again, I doubt he would have chosen to work for them if they didn’t think it had huge potential, where Nick could make a name for himself etc. Similarly for Jeff Dahn’s son Jackson, who is also working for Novonix. If their tech was poor and wouldn’t make it, I’m sure Jeff could use his contacts in the battery industry to find Jackson a better job. So this gives me further hope in a backward sort of way.

9. Demand over coming years is just SO HUGE!

Looking at various graphs for just how large the battery industry is going to be, and how much raw materials are needed to sustain this growth, I would believe it near impossible for Novonix not to receive a reasonable percentage of the demand in contracts. One estimate I saw said Tesla alone may need 2 million tonnes of anode material by 2030. Only 160 000 tonnes of syngraph were produced last year (and several hundred thousand tonnes of natural), so if we do the maths, there is a LOT of materials needed in coming years.

Novonix are currently proving their product is consistent in a way that is needed for large scale cell production (ie. to receive contracts), and they are ahead of most other players outside Asia. Tesla or not, there is so much demand growing in coming years, Novonix WILL get contracts and will succeed. There will be room for multiple players and many will do well, and hopefully Novonix will be at the pinnacle of that growth in the materials sector.

I also believe Grid Storage could grow over the coming decade to be larger than EVs. Grid Storage batteries need a high cycle life, so companies like KORE Power (hopefully agreement very soon!) and Tesla will be looking for high cycle life materials for their next generation of GSS batteries, and Novonix materials will be near the top of their list.

Don’t worry about Battery Day, a deal with Tesla willhappen - eventually

Yes, many of us have found Novonix through the hype of a possible deal with Tesla, and the thought of that is exciting. But the more I research, the less I doubt Novonix will be supplying anode materials to Project Roadrunner. I think Tesla, while probably interested, wouldn’t be able to rely on Novonix until their supply/scale is larger. Novonix will probably be part of the story for the next stage of battery upgrades and innovations.

Tesla would like Novonix’ greener materials, as they produce substantially less waste and CO2 than their competitors in Asia. What’s more, transport costs to Tesla Giga/Terafactories would also create less greenhouse gases than importing from Asia. Tesla takes its environmental footprint VERY seriously, so these will all be factors as to why in 2021 or 2022, I believe Tesla will sign a substantial contract with Novonix, either directly or through Sanyo/Panasonic. Sanyo deal might come sooner than that of course, but may be similar to Samsung, that they want a smaller amount to test and implement on a small scale before going big.

My ‘Bull Case’

On only a rudimental level, I give you my ‘bull case’:

2020/21 – First large scale contract with Samsung SDI contract (5000t in 2021, 10000t in 2022) smaller contract with KORE Power (2000tpa) contract and possible announcement of small-mid size Sanyo contract(2000t ramping to 5000t). US Govt loans for scaling. Tesla licences DPMG for small scale cathode materials. Share price $4-$5, with revenue around $80-100million in 2021.

2022 – Scaling anode and commencing cathode production at scale – first contract on cathode materials and release of high energy Si-C materials. Sanyo increases contract size after initial shipments(20 000t by 2025). Deal with Tesla to supply anode and cathode materials to Austin Terafactory (10000t each in 2024 ramping to 50000t each in 2027). Deal with SK Innovations to supply VW cars in US. Deals with other providers of GSS or with CATL. Share price $7-$8 with revenue of $250 million.

2023 – Scale coming into play, margins increasing. Announcement of Novonix factory in Europe for 2024-2025, possibly in Scandinavia to take advantage of cheap and green hydro power. Royalties from DPMG growing. Share price $8-$10 with revenue $400-500million

2025 – Revenue of $1billion hit (and growing rapidly). Combined 100k tonnes of anode/cathode materials produced.. Share price $15-$20. Novonix decides to start producing their own batteries for further vertical integration, focusing on Grid Storage, possibly in conjunction with KORE or Lucid or Tesla. First significant dividends to shareholders.

Conclusion

The most important thing for me in the coming months is to get one large contract signed – Samsung being the obvious choice. One solid validation and reason to move to significant scale will change everything for this company, and share price will respond accordingly.

We are still in the early days of Novonix growth cycle – I think many of us, me included keep forgetting that, and have to give them time to get these things going. It takes months, even years to get into this market, and they are well underway doing that, but it will take more time to get to the next level, but from 2022-23 I think the rate of growth in production and contracts will propel the share price nicely and make it worth all our investments.

Thus, just like Tesla (of which I also own shares), there will be some ups and downs in the short term share price, but the long term future is IMMENSE and current shareholders who hold long term should reap the benefits in the medium to long term. The vast majority of my savings have gone into these 2 companies, so I have tried to make sure my investment is well spent.