Ok folks, with the macro market situation and many...

Ok folks, with the macro market situation and many “commentators” coming out of the woodwork asking about the NVX fundamentals (although it is funny that the loudest voices actually demonstrate they seem to know very little about the industry or how NVX is positioned), I thought I’d do exactly that and capture my thoughts on the NVX opportunity.I’ve done this before but it seems there are quite a few new faces (and voices) to the story.

Again, bit of a longer post, but ultimately there is quite a bit to the complete thesis and I thought I’d capture my full thoughts in one place as to why I am invested in this company. It’s probably more like an “investment note” (of sorts). I should also mention that I have been closely tuned-in to the industry & company for quite a while now, & have a LOT of hours or research under the belt. Hopefully even close followers may gain some new perspectives, and also hope to be useful to catch up some of those new to the company and this forum.

In summary, I see NVX as a GENERATIONAL INVESTMENT OPPORTUNITY… based on the fundamentals, one with multi-MULTI-bag potential. To put it mildly.

So, similar but more extensive exercise to what I have done before (and to reiterate)... I have basic P&Ls by year to help understand how the business trajectory looks over time (particularly important I find for a company pre-revenue / profit with huge blue sky market potential like NVX.. and therefore the P&L leverage is high and often not YET well understood by market). However, this time I simply developed some basic scenarios based on anode tonnages that NVX have guided for in 2025 & 2030 (40k & 150k respectively), information about the projected market pricing & COGS (from market guidance & previous NVX info). The scenarios then expand to incorporate other business lines (DPMG cathode, electrolyte, other revs like Emera or full battery service) and geographic expansion (to EU)… To keep it simple they are all based off a ratio to the base anode business. In the spirit of disclosing my own perspective I also put in a full bull case, or perhaps more aptly “Complete Bull”.

There are a few other assumptions in there too (OPEX rates, DOE grants & loans to fund expansion, PE ratio for valuation etc etc)... all marked yellow.

This time I have also captured the core validation or thoughts behind each key line in the P&L in “Notes” below (similar to how a company would report their P&L in an annual report). There is a lot there, for those interested.

Before the P&L though, here are the highlights to the story – captured more fully in the “Notes” section below the P&L.

HIGHLIGHTS:

- NVX the clear leader in synthetic graphite & Anode tech. The ONLY domestic option in the US ready to scale

- May well also become a leader in Cathode materials through the decade, with superior quality material with higher cycle life & better ESG credentials able to be produced from lower cost, more flexible & plentiful inputs

- Other verticals such as partnership with Emera into microgrids opens up other massive markets, similar to Tesla Autobidder. Potential for further integration as a Top Tier battery maker in own right

- Is a lock for large government funding as supply chains for critical materials are repatriated

- Recession proof, supply constrained with huge, generational industry & government tailwinds

- Could quite realistically be 100+ bagger. Perhaps similar to investing in TSLA at IPO


And here's how the math works out… scenarios across the top, P&L / valuation inputs down the side.

SCENARIO-BASED P&L:

So, the 2030 Complete Bull case is > 100 bagger. For reference, that would turn $100k into $10m. Not bad.

Remember, where the business goes the share price (over time) will follow.

Now here are the notes:

NOTES TO P&L

NOTE 1: US ANODE VOLUME (TONNES) (US)

- NVX official forecast of 40kT by 2025, 150kT by 2030 used in P&L as a basic starting point

- However, NVX official forecasts will be ACCELERATED and INCREASED in line with funding from both US DOE grant (due within next 12 months) and DOE loans. (see later commentary, under Loans & Dilution, on why DOE funding is “locked in”)

- Benchmark Minerals notes the planned capacity of currently announced US Gigafactories is 390kT by 2026 & towards 700GWh by 2030 (~1500GWh of planned capacity announced across US & EU), so NVX’s current forecast will support just a fraction of the potential demand. Note that over the last several years both the capacity of announced Gigafactories, as well as projections for EV & ESS demand, have been consistently under-called (and therefore increasing) by market commentators

- Benchmark Minerals also project a significant supply deficit for graphite (as with other battery materials) through 2030, suggesting NVX will be SUPPLY NOT DEMAND CONSTRAINED through the period

- Currently the US domestic production of graphite is basically ZERO, with the supply chain controlled by China

- The Ukraine conflict has reinforced the URGENT NEED for US (and European) energy independence and the accelerated transition to clean energy, and hence the control & sovereignty of associated supply chains of critical materials. These issues have become even more relevant & central to national security. This will be one of the key focus areas & beneficiaries of government stimulus and policy over the next decade.


Why NVX’s Synthetic Graphite:

- Synthetic graphite has significantly higher cycle life performance than any other graphite alternative, while retaining a high energy density. Note NVX graphite was used in Jeff Dahn’s “century battery” that was recently presented. See below commentary on why cycle life matters.

- NVX anode material is also the ONLY domestic source of synthetic graphite in the US that is (anywhere near) ready for scale. Anode materials take YEARS to complete comprehensive validation programs, from pilot to scale commercial batches (due to huge implications for battery makers & OEMs if something goes wrong 5+ years into its application). NVX saw the trend early, was a first mover and commenced the process many years ago, and is now on the doorstep of finalising validation with several Tier 1 battery makers (Samsung, Sanyo / Panasonic & others not yet disclosed).

Why Cycle Life is KING: - Cycle Life (along with lower cost) has now become THE MOST IMPORTANT FEATURE of batteries. That is, current chemistries have now achieved minimum range requirements for the majority of consumers, particularly as charging infrastructure will be built out significantly and “range anxiety” recedes. Most consumers will also charge at home, so charging speed is far less important (notwithstanding that batteries with higher cycle life can also afford some degradation that happens with occasional high-speed supercharging)

- Higher cycle life enables key selling & use features including vehicle-to-grid capability (without which the battery would degrade too quickly as the battery continually cycles back and forth to the grid). Several OEMs have already committed to this technology. As a side note, those that want to be competitive long term will likely follow- A higher cycle life also lowers the total cost of ownership (upfront cost amortised across battery life). This is important for EVs and pivotal for ESS & commercial use cases. Cycle life will also be central to a world of autonomous vehicles (presuming one aligns with that probability) that increase mileage and cycle life requirements of vehicles by an order of magnitude.

- By the way, by 2030 the whole grid will be going renewables and stationary storage will be a key feature creating massive demand- Importantly, on the cost / ESG side, it is not just the cost of the graphite that is amortised, it is the cost of the WHOLE BATTERY. That is the whole battery lasts longer, not just the graphite component.

A note on green credentials:

- Similar to the cost, as noted above, the carbon footprint of the input materials needs to be amortised across the useful life of the input or asset. By doubling cycle life, NVX graphite halves the carbon footprint not only of the graphite component but of EVERY OTHER BATTERY MATERIAL, including (for example) the lithium. To spell it out, the battery’s lithium ESG credentials “doubles” not by halving their own carbon footprint but by using NVX’s synthetic graphite (this same logic could of course be extended to the whole car too!). Let that sink in.

- Minviro, who specialise in the environmental impact assessment of materials (and also used by other Tier 1s including Tesla), reported NVX synthetic graphite was 60% lower in global warming potential than Chinese synthetic graphite, and 30% lower than Chinese natural graphite (which collectively account for ~80% of global battery-grade graphite production).

Rebutting the “dirty coke” argument:

There also seems to be a SERIOUS misunderstanding (or FUD) from some commentators of the poor green footprint of a synthetic graphite-based anode. Many mistakenly suggest that because the graphite comes from a carbon source (e.g. petroleum coke) that makes it “dirty”. However, this is false and misleading!

The coke is CONVERTED (not consumed) into graphite. The graphite doesn’t release emissions into the atmosphere. It STAYS as carbon, not CO2!! Just like a tree is a carbon source (doesn’t make a tree dirty, in case I lost you). From recent observation, people seem to be “confusing” this with when coal or coke is BURNT to make energy. That is NOT the same as when it is CONVERTED into graphite. COMPLETELY DIFFERENT!!!!

The only carbon footprint therefore comes in the actual mining or processing of the coke. The main portion of this is the large energy required to convert the coke into graphite... Note, however, that NVX will use predominantly RENEWABLE ENERGY (it actually could be exclusively, as quoted by Chris Burns) due to location in heavy renewables grid of TN (this will also no doubt increase over time as the whole grid gets cleaner). The other is emissions from the processing itself, but as we have heard from NVX in the past they have a closed loop system in their state-of-the-art ultra-efficient furnaces, and the coke they use also has very very low impurities. Once NVX utilise their DPMG tech they will also be getting ~100% yield, so all inputs make it into the finished product.

Not to mention NVX synthetic graphite will last multiple cycle lives vs other graphite options... which amortises the footprint across many more "miles".

So, bottom line is, this lack of green credentials of a synthetic graphite anode is actually FALSE (FUD) and based on a misinterpretation of what is actually happening!


Which Customers will NVX serve?

- With clearly superior graphite for the majority of use cases, a chronic supply shortage and NVX being the first to provide scale to the domestic supply chain, NVX can basically pick & choose their customers.

- NVX will supply primarily to Tier 1 Battery Makers & Auto OEMs, relationships already established through their BTS division.

- The currently disclosed customer set includes Samsung SDI & Sanyo / Panasonic who are both currently undergoing final validation. NVX is exclusive graphite supplier to Kore Power and their projected 12GW plant. Burns notes there are others under NDA

- VW group touted use of synthetic graphite at their “Power Day” (now who else can provide a domestic source of this… hint: no-one). There are multiple other Battery & Auto OEMs that are setting up factories in TN and surrounding area. Expect ALL of these to want NVX graphite, if they can get it.

- As access to battery materials is the “limiting factor” (shoutout to Jordan) to producing batteries & EVs (and staying viable as a company) Burns has indicated to expect some battery makers and OEMs to even commit upfront capital to enable NVX to scale in order to reserve their capacity. Sweet.


Graphite vs Other Emerging Anode Tech:

- Graphite will remain the vast majority of anode through 2030 and well beyond. Benchmark Minerals forecast graphite’s 2030 share of anode to be ~90%

- Why? Firstly and fundamentally, graphite provides FAR superior cycle life vs any other alternative, which as previously noted will only increase in importance for the majority of use cases. Secondly, graphite costs significantly less, which is even enhanced as it attains large scale vs newer emerging tech. Thirdly, the billions of dollars in installed Gigafactory investment in the coming years will all be focused on graphite anodes.

- New tech will instead fill more “niche” use cases (e.g. luxury or high end EVs, aviation etc). Still a big market by 2030 mind you, but a fraction of the mainstream consumption

- Note also that NVX BTS division, through collaborations and work across tier 1 industry, keeps NVX on the cutting edge of battery tech and adapting in house research & development to new directions, chemistries &/or formats. NVX also have the industry’s best tech development team (between Obrovac & Dahn at Dalhousie) + the big brains in the NVX in-house team including Dr Burns himself.


NVX will be “Recession proof”:

- Despite the macro concerns, NVX will not be affected by short term recession impacts. With demand supply imbalances in graphite & other battery materials to 2030 and beyond, NVX will be significantly SUPPLY CONSTRAINED, not demand constrained. Hmm, where have we heard that before?

- The US (and other) governments will also be providing huge fiscal stimulus to build the domestic supply chain of critical materials. In fact, in a recession environment the fiscal support tends to actually increase to provide economic stimulus and support domestic jobs. As noted earlier it is also an undertaking of national security.

- The DOE will also provide a supportive loan environment with access to large sums of low interest capital vs general commercial terms, so the higher interest rate environment is also basically a non-issue

NOTE 2: ANODE PRICE

- Benchmark Minerals project pricing of synthetic graphite for battery anodes to remain >$10k through 2030 with chronic supply shortages

- NVX material provides substantially premium benefits (and can thus attract premium pricing) through significantly greater cycle life – which amortises graphite cost across more miles, dramatically improves ESG impacts (of graphite and all other input material), enables key selling features such as vehicle to grid, is essential for ESS use cases & autonomous vehicles

- US Tariffs have been applied to China synthetic graphite, allowing additional pricing for NVX domestically produced graphite

- Note that if high inflation continues to be a factor in the economy, synthetic graphite pricing will also be inflated!


An Illustration: Cycle Life Impact on Pricing Power & ESG:

Assume an original graphite costs 10% of the overall battery. Let’s assume then an overall graphite cost of $1, of a $10 battery so the rest of materials and componentry is $9. If NVX synthetic graphite doubled the cycle life of the battery (2000 cycles vs 1000 cycles, perhaps a conservative estimate) it could be priced at 10x the price (NVX graphite $10, rest $9, total battery $19) and the total cost of ownership (e.g. in grid storage) would be LOWER than if the battery maker used the original graphite. The carbon footprint would also be HALF vs the original graphite / battery. So, basically, the carbon footprint of ALL the other input materials (e.g. the lithium) is HALVED. All while the total cost of ownership is reduced. No brainer.

Not suggesting that NVX will price its graphite so high, but an illustration as to its value to customers and long-life applications (which includes basically all ESS applications)


NOTE 3: COST OF GOODS SOLD

- Based on previous company cost guidance. However, this was before a number of key developments that will improve NVX’s cost of goods position – i.e. application of DPMG tech, P66 investment and supply link, Gen 3 furnace technology (improve furnace efficacy and lower capital needs), significantly increased scale (which will leverage fixed capital and cost across significantly higher units).

- Further, when taking a longer-term perspective, as energy costs decline via significant investments & scale into renewables (just google thought leader Tony Seba’s & RethinkX view on “Super Power”) the cost to produce synthetic graphite is also set to significantly decline.


NOTE 4: CATHODE RATIO VS ANODE

- In recent remarks Chris Burns noted that (while currently under the radar) the other NVX operating divisions [primarily Cathode] can be “equal to or bigger than the Anode business in 3-5 years”. Holy smokes.

- The market for Cathode materials (e.g. Nickel) is considerably larger than the Anode market due to the higher cost of the materials involved (vs graphite)- NVX recently received grant funding from Canadian government to develop their Cathode pilot demonstration plant. Burns noted “very promising” results so far.

- NVX cathode uses DPMG in a dry process (no waste water and 100% yield of input materials). The process can also utilise MORE PLENTIFUL, LOWER COST INPUTS (e.g. nickel oxides). This, as example, opens up access to far greater Nickel supply (my goodness, who was recently worried about Nickel?) while simultaneously reducing costs.

- DPMG can also create Single Crystal cathodes, which dramatically increase the structural integrity of the cathode and further increases cycle life. This provides subsequent ESG, premium pricing & lifetime cost of ownership benefits, as with the Anode commentary above.

- Capex and footprint requirements are also dramatically reduced, improving downstream COGS and ability to scale.

- NVX can leverage Cathode technologies into the same Tier 1 Battery and OEM relationships as their Anode materials

- Rest assured, separate government / DOE funding will be attached to Cathode manufacturing & scale-up

- It is possible NVX may choose to licence out portions of DPMG cathode to reduce their own capital needs and accelerate the scaling of the technology


NOTE 5: CATHODE GP%

- Put simply, NVX will be able to charge a premium (better cycle life, significant ESG benefits, US sourced) with cheaper inputs (e.g. Nickel Oxides, lower capital costs). In fact, the GP% assumed in the model could be quite conservative!


NOTE 6: ELECTROLYTES

- Burns has noted in the past that team has in-depth electrolyte experience. Note that the NVX cycle life graphs include “Advanced Electrolytes” that contributes to the cell’s superior performance

- Relatively small vs Anode & Cathode but providing electrolyte tech will enable NVX to offer a fuller suite of materials & further leverage relationships with their Tier 1 clientele


NOTE 7: OTHER REVENUES

- Burns has stated there is various work being conducted in background across parallel verticals that will produce similar profit centre divisions to complement the currently scaling Anode business unit.

- EMERA MICROGRIDS is a recently disclosed example. NVX produces the battery using NVX anode material, which provides high cycle life that is pivotal to ESS systems. US Dept of Defence have been testing pilot system over last ~18months with “successful results” and will introduce microgrids across global military sites. Emera Microgrids basically unlocks a similar opportunity to Tesla Autobidder, which is a “Needle Mover” to a company worth >US$700B. Jeepers.

- NVX also now owns 5% of US battery producer Kore Power, with current plans for a 12GW plant in US by 2030

- NVX is also aligning with key clean lithium players (e.g. LKE, SYA, ASN). Is it possible there is more to these relationships than simple testing services? Moonshot (shoutout Gali) - NVX somehow leverages these clean Lithium relationships to further participate in the full battery value chain. Could they become a battery maker in their own right? Soon they will have access to the best, cleanest and most abundant suite of critical materials to make them, as well as tech & collaboration relationships with Tier 1 battery makers. Not out of the question imo. The Emera partnership is indeed a toe in the water to extend further downstream into battery cell & pack production. NVX could become a serious “powerhouse” (forgive the pun) vertically integrated across the full battery supply chain. Double jeepers.


NOTE 8: EUROPE EXPANSION

- The broader European economy and demand for battery materials is roughly equivalent to the US, and has the same policy tailwinds as US (climate change, clean energy, energy independence & region security, domestication of supply chains & critical materials)

- Burns has stated Europe is logical step after initial focus on US. Possibly via partnerships with locals

- Phillips 66 Humber refinery in UK produces the required Needle Coke inputs and provides relatively straight forward platform for tech transfer and supply chain setup

- NVX can leverage the same Tier 1 battery & OEM relationships that are relevant in US- Note, although not included in the model, other geographies may also be added (eg Saudi, Asia, etc)


NOTE 9: OPEX

- OPEX is currently being ramped to provide the base infrastructure & resources for growth.

- A significant portion of cost will be directly attributable to production, and therefore in the future be accounted for in COGS (which ramps proportional to sales, detailed separately)

- OPEX will be leveraged as the business scales, with additional business units and geographies leveraging the same fixed costs

- NVX operate at the “pointy end” of business-to-business sales. Their business model (OPEX) does not require advertising and the relationships established with Tier 1s established under their BTS division acts as a pseudo “sales infrastructure”

- R&D is very efficiently managed through collaboration with Dalhousie University and their BTS division collaboration agreements


NOTE 10: FUNDING – LOANS & ASSUMED DILUTION

NVX is basically “a lock” for funding via the DOE infrastructure grants, with minimum initial tranches of US$100M

- Graphite and synthetic graphite were specifically called out within the US review of critical materials that required urgent attention to onshore (China currently controls 100% of battery grade synthetic graphite for US)

- NVX is the only validated source of domestic synthetic graphite in the US. It is the only tech ready to scale as the US faces the urgent need to build domestic capacity & 100s GW plants need to come online

- When you review the proposed funding bill under the BIF, it reads like it has been written for NVX, which is perfectly positioned with tech that will meet the funding criteria and achieve the funding objectives

- NVX pilot furnace tech has already received a DOE grant (& was notably the only grant for graphite)

- US Secretary of Energy Jennifer Granholm has already shown her interest, visiting & speaking at NVX’s opening of their TN plant “Big Blue”. In her previous career she also reported to NVX board member Andrew Liveris (where he was Chairman of Dow Chemicals & she served on BOD).

- Andrew Liveris was also instrumental in helping Biden pass the Bipartisan Infrastructure Deal of which the funding for critical materials is a key feature. Liveris has been a key consultant to senior members on both sides of US government & is VERY well connected. NVX Chairman Admiral Natter doesn’t rate too bad either, particularly when it comes to issues of national & energy security and potential funds flowing from the recently touted Defence Production Act

- Note over time there are MANY streams of potential grant funding (Anode, Cathode, Emera, Kore, other divisions) and the first tranche is likely just a beginning as the US govt commits to building out the full US supply chain by 2030.

Debt:

- Same general commentary as grant funding above. DOE will provide significant sums to assist NVX scale. They basically have to. These loans will be at low government cash rates with attractive repayment & other commercial terms

- Note NVX will be significantly cash flow positive to support these and other debt capital needs by 2025/6.


Other Funding Sources:

- As noted above, with the bottleneck and race to secure critical raw materials & battery supply, Burns has indicated that battery & auto OEMs may even commit up-front capital to reserve their capacity and allow NVX to further scale operations

So, basically, NVX will have a multitude of massive funding options that will enable them to scale significantly that will NOT require any dilution of existing shareholders. Quite a nice position.


NOTE 11: PE RATIO

- Overall average for NASDAQ P/E sits ~25, as assumed in NVX CB longer term scenario (2030)

- Short term P/E (e.g. 2025) is higher as industry & NVX are in early stage of growth & earnings ramp. Discounting the 2030 NVX P&L back to 2022 or 2025 (even at 25%) would lead to significantly higher PE ratios than assumed in the model


IN CONCLUSION - WHERE TO FROM HERE:

As Buffet notes, in the short term the stock market is a voting machine. A lot of noise. In the long term it is a weighing machine. It depends on the business & the fundamentals.

Looking a decade out, how much would you pay for a company that has the best tech & scale in anode & cathode, is vertically integrated from raw materials to battery production, and supplies the complete set of (other) Tier 1 battery makers and Auto OEMs. Oh, and the US military. They also have set up an energy company with partner Emera to build distributed microgrids, akin to Tesla’s venture with Autobidder. Then there are the other verticals that the big brains of Burns, Dalhousie & NVX are working on behind the scenes.

In markets worth TRILLIONS.

Things are just getting started. Sign me up.

CB